For contractors who work with subcontractors on different projects, the thought of having to invest in surety bonds for those subcontractors can feel a bit redundant. After all, the general contractor already has bonds in place, and they trust their subcontractors to follow through on the job well. With these thoughts in mind, your contractor clients may not be thinking about the necessary protection subcontractor bonds deliver
Surety bonds for subcontractors help guarantee that the general contractor won’t run into financial liability if the subcontractor defaults. These bonds are a good idea for any general contractor allocating work to subcontractors. But in these particular five instances, they are an absolute necessity.
1. The general contractor hasn't worked with the sub before
Working with an unknown subcontractor is relatively common in the construction industry. As contractors take on new projects, there’s never a guarantee that their original team will be available when they need them to be. Though your contractor clients likely perform their own due diligence when choosing new subcontractors, it still comes with an increased risk. General contractors may not know how the new sub will perform or how their work will hold up throughout the project. A performance bond will help protect the general contractor from financial loss if the new subcontractor is disappointing. Without that bond, the general contractor’s liability only increases.
2. There's increased liability for the general contractor
Liability varies from project to project and can depend on the types of systems the clients ask for in the project. If general contractors are relying on subcontractors to install key components like HVAC systems, plumbing, or designing complicated risk-mitigation systems, the general contractor may be liable for any problems if those systems don’t perform as expected. By investing in a performance bond, the contractor will be better able to protect against that upward flow of liability.
3. The subcontractor can't easily be replaced
When general contractors hire subcontractors, it’s often to take care of specialized tasks that their core crew can’t handle on their own. In those instances, it’s also common for those subcontractors to be so skilled as to be truly difficult to replace. If something were to happen and the subcontractor was unable to complete the work they were hired to do, the build schedule would fall behind and the general contractor may be liable for the delays. The bond would help protect the contractor and make it easier to compensate for any changes in schedule.
4. The general contractor wants someone to vet the sub
One of the hardest parts of working with a new subcontractor is not knowing if they’re financially stable and able to complete the project without defaulting. General contractors don’t always have the time to vet each subcontractor they work with thoroughly, making each potential job a liability risk. Typically, the surety performs background screenings prior to issuing the bond. This helps the surety decide if the subcontractor is worth bonding or whether they should deny the bond outright. If the subcontractor has a good track record for providing quality service and maintains strong finances, the surety will typically issue the bond. Though the surety’s background check isn’t enough to guarantee that the general contractor made a good choice, it is enough to help take some of the stress out of working with an unknown.
5. The project covers a larger scope than normal
Though some general contractors work on projects that are about the same size and scope every time, there are times when your contractor clients take on projects that are of a much larger scale and require additional components that they and their core team may not have experience handling. That means taking on additional liability and risk throughout the project. The best way to increase the likelihood of the general contractor securing a larger bond than normal is to make sure that their subcontractors are bonded as well.
Support your general contractors the right way
At Gray Surety, we understand that general contractors need simple and effective ways to reduce their liability risk regardless of the type of projects they take on. Whether your general contractor clients are working with new subcontractors for the first time or have an established team of experts they trust, we’re here to help with both performance bonds and payment bonds to protect all parties.
Have additional questions or concerns? Contact Gray Surety to learn more.
The foregoing information does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. For more information, we encourage you to consult with your attorney.