Challenges to the way construction companies do business, including costs of labor and supplies, stricter regulations, and especially COVID-19 compliance, are persisting in 2021 and will require contractors to continuously innovate to reduce errors and waste and remain competitive. While new technology and digital transformation dominate the conversations, reviewing risk mitigation strategies like your surety relationship may be one of the most valuable actions a contractor can take.
Here is one brief example where the RIGHT surety, with common sense claims resolutions, can make all the difference in completing troubled projects.
It started with a payment bond claim, which was followed in short order by a second payment bond claim. The agent emailed to say the contractor was struggling financially. The proactive surety, with the contractor client in mind, acted immediately to understand why the contractor was experiencing financial difficulties. The surety's claims resolution team learned that the issue, in this case, was a disputed, substantial change order on a large project. This unresolved change order was impacting the contractor's cash flow resulting in outstanding payables. The contractor also had ten other open bonds for projects that were nearly complete or at the punch-list stage. At the time, it appeared the contractor would be able to complete all the projects if the surety resolved the open payables.
Over the next five months, the surety received multiple payment bond claims. The claimants were very complimentary of the principal's character and the principal was cooperative and heavily involved in the surety's investigation of the payment bond claims and assisted the surety in verifying the specific amounts owed to each claimant.
Even though the disputed change order had not been resolved, the principal, with the surety's assistance, was able to cooperatively resolve open payables with its subcontractors and suppliers, enabling it to complete all of its projects while avoiding costly liens, attorney fees, and late penalties.
A surety bond is more than just a contract requirement. The right surety relationship can provide significant benefits:
- Access to legal and construction industry professionals to help with contract evaluation.
- A partner when difficult situations arise to help identify and implement practical solutions to mitigate damages and project impacts.
- Access to an extensive network of industry experts to provide assistance as necessary.
- Protection against subcontractors and suppliers who could otherwise lien the project.
Partnering with a surety with a common sense approach to bonding and claims resolution is the most cost effective and efficient way to mitigate the risks of your construction contract.