As a contractor, you understand that working means entering into binding agreements. Contracts more or less are rules to let business parties know what to expect from one another. Parties who work with contractors will expect the contractor to complete their work according to the stipulations of the contract.
If the contractor cannot complete their work, they likely are in violation of the contract. Violating contracts could cause hardships for the contractor and their clients. To allay these risks, clients often require the contractor to carry surety bonds. Surety bonds essentially serve as insurance for the client should the contractor fail to deliver. What happens if you have to file a claim on a bond?
What are Bonds?
A surety bond is not insurance. However, it serves as a financial guarantee. You (the principal) enroll in a bond as part of a contract. You guarantee your client (the obligee) that you will repay them for any cost losses that result if you can’t complete the contract. You obtain a bond from a surety company.
If the contract falls through, the obligee can file a claim on the bond. The surety company will then issue payment to the client for their losses. However, the principal does not get off for free, like they would with standard insurance. The principal will then likely have to repay the sum of the claim to the surety company. This is how a surety bond differs from insurance. It only guarantees that the principal has the assets and support to pay back claims.
What if I Face a Bond Claim?
No contractor wants to face a bond claim, as it means you might have to pay. However, if a claim arises, you likely need to follow a process to respond.
- Review the contract. You should know ahead of time what you will have to do to file or respond to a claim. Always follow the terms of the bond and contract when responding to and submitting the claim.
- Know how the surety company will expect re-compensation.
- Keep all documentation relating to the contract on file. You will likely have to submit it to the surety company to assist with processing the claim.
- Work with the surety company to ensure the fast payment of the bond.
Remember, a contract failure may lead to more than just monetary repayment. The surety company might take over helping the client find a new contractor to complete the work. Therefore, work closely with the surety company throughout the claim’s duration to settle the matter. Contact one of our agents at 800-511-2892 for more information.
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