The Benefits of Requiring Subcontractor Bonding

Bonding back SubsIf a general contractor retains the primary liability for the completion of a project whether subcontractors are bonded or not, what is the big benefit in requiring subs to be bonded? Doesn’t it send the wrong message that the GC does not trust the subs?

Why Require Subcontractors To Be Bonded?

The answer is that bonding back subs is a good practice because it protects the equity of the general contractor and the overall ability of a project to recover from a sub’s default. A GC may have worked a long time with a sub and never had any issues, but there could be hidden problems brewing or one weak area that isn’t known that could lead to a shutdown. There are also unpredictable events such as the sudden death or incapacity of a sub’s key person.

Are There Risks?

General contractors often complain about the price increase on a bid caused by bonding back subs. But what is the price of the risk of a delay or shutdown due to a subcontractor’s default? It also serves as leverage when working out an issue with a sub, as they know that their bonding company may be contacted if they are involved with a delay and/or dispute. Maybe with a good explanation of the value of reducing such risk, a project owner will see the extra cost of the bonds to be a good investment. Plus, not all subs have to be bonded. A general contractor can choose which subs meet the criteria for criticality or value on the project and require bonding for only those.

Rich Sghiatti, Southeast regional vice president at Old Republic Surety, delves into the important details on bonding back subs in the article "Why GCs Should Bond Back Subs" from the newest edition of Surety Bond Quarterly.

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