Surety Bonds Are Not Fair!

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Why are some bonds better than others? Why are small kids harder to get than grown ups?

Construction companies are among the most important clients of the collage company. They are the source of the performance and payment obligations that guarantee their construction contracts. For a surety company, these are probably the largest and most lucrative deals. So why would the bond run the risk of losing a customer by giving difficult conditions for a clearly small bond?

There are many types of bonds and contractors may need them: bond, performance, payment, maintenance, license, license, court, are some of them. In this article, we will discuss why larger (larger) may be easier to obtain than smaller ones – even for same applicant.

The answer to this question lies in the nature of the obligation, not the amount in dollars. A good way to illustrate this is to compare a performance obligation to a salary and welfare obligation.

deposit

Performance and payment obligations (P & P) relate to construction contracts. They guarantee that the applicant carry out project in accordance with all aspects of the written contract, and they will Pay the corresponding invoices for the suppliers of labor and materials.

Salary and provident

This type of bond is necessary for union contractors (companies employing unionized workers). The W & W bond guarantees that the construction company will pay the union's rate of pay as needed and pay the corresponding periodic contributions to the union's benefit plans, such as pension and health plans. insurance program.

It's not fair!

P & P bonds range from a few hundred thousand dollars to tens of millions, whereas a W & W bond is often under $ 100,000. So, why can it be easier to get the big one? Why is a $ 500,000 performance bond easier to obtain than a $ 50,000 union bond?

The answer lies in the nature of the obligation – and in the worst scenarios.

Suppose the entrepreneur stops his activities. With a performance bond, the surety engages in the shoes of the entrepreneur. They must make arrangements to carry out the project in accordance with the contract. The beneficiary of the bond (or the creditor, the policy owner) continues to pay the rest of the contract amount as the work progresses. Now, they pay the bond making the completion. This is what is known as the "unpaid contract amount". Even if the entrepreneur falls flat and has no money personally, the amount of the unpaid contract is a resource that the surety can rely on – and hopefully to avoid a net loss on the claim.

The union link is a promise of pay funds at a later date. It is a financial guarantee – the most stringent kind of guarantee obligation. Subscribers will examine their crystal ball … Oh, sorry, we do not have one.

The bond guarantees the future solvency of the construction company, which is not an easy task. And if they are wrong, if the contractor can not make his union payments because they have no money, there is no money for the bail either.

Q. Who is eligible to pay for the salary and social assistance?

A. The bond (a net loss)

This is the difficult nature of some small obligations (salary and social protection, privilege release, supersedeas) that makes them exceptionally difficult to obtain – often requiring a full guarantee. On the other hand, the surety can give the same applicant a $ 300,000 performance bond based primarily on his credit report!

At the end of the day: It's just not fair, but we've never promised it, because the nature of the bonds is different. This is the deciding factor, even more than the dollar amount of the deposit.


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