Understanding the Surety Bond Claim Process in the Construction Industry

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A surety bond in construction typically involves three parties: the surety (the insurance company), the contractor (principal), and the owner (Obligee). It is a complex relationship in that three parties are involved rather than the most familiar two-party insurance coverage between the insurance company and the insured party.

Before a surety supplies credit (insurance) to the contractor, (which is an amount usually decided by the value of the project), the contractor is thoroughly vetted and must meet the sureties’ stringent requirements prior to being insured. The cost of the Surety Bond can range from 0.5% to 3.0% of the bond amount or needed coverage usually decided by the successful bid amount of a project. This coverage varies and can include payment and performance bonds, which means that if a project becomes troubled the surety agrees to back up the contractor if he does not meet his contract requirements at least up to the bond amount ensuring that the owner’s project will reach completion.

This means making arrangements with the contractor to complete the work (Performance Bond) and/or (Payment Bond) making sure that the subcontractors have been paid so that no liens are filed against the project.

In the event that the contractor is terminated, defaults on a project or is having financial difficulties the Surety Specialist assigned to the Bond may reach out to an outside experienced and licensed construction consulting management firm to manage the project to completion by working with the existing contractor or manage the relet of the project to a replacement/completion contractor due to contractor termination, or in some cases after project review, simply offer to pay the amount of the bond to the owner.

The goal is to complete the project as cost effectively as possible avoiding increased spending by the Surety.

Examples of outsourcing help in the Surety Bond Claim Process include but are not limited to:

• On the job monitoring/supervision in the case of project takeover and completion.

• Assistance in evaluating payment and performance bonds making sure all dollar amounts are verified and accounted for by the contractor, subcontractors, and vendors.

• Help in subcontractor negotiations and evaluation of subcontractor claims.

• Change order control and review.

• Claim preparation, contract administration.

• Estimate percentage of work left to complete in the case of contractor termination or default

• Relet the work to a takeover contractor on behalf of the Surety.

At The Swaney Corporation – Crowe Construction, we are committed to helping the Surety Bond Claim Industry in the Bond Claim Process by bridging the gap between the parties involved in the construction claims process, helping them achieve cost effective solutions and offering top-tier support in resolving disputes and legal claims. To talk to one of our experts, call (707) 665-9668.

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