What might cause a claim on a surety bond?
Many times when the subject of a surety bond and contract bond comes up we get asked many questions. One of those questions includes What might cause a claim on a Surety Bond. When a claim is made on a surety bond, it can be a costly and time-consuming process for everyone involved. The purpose of this blog post is to provide an overview of what may cause a claim on a surety bond and some tips on how to avoid them.
The most common reasons for a claim on a surety bond are:
1. Breach of contract
2. Payment default
3. Injury or damage caused by the principal
4. Non-compliance with government regulations
To avoid a claim on a surety bond, it is important to ensure that the principal is in compliance with all contractual obligations and government regulations. Finally, it is important to ensure that all payments are made on time.
What to watch out for
An example of a performance bond claim that we have seen happened because of poor planning and bad luck. The project was for installing cabinets and countertops into a very large apartment complex being built. The contractor had ordered their cabinets from China and were having them delivered as needed, just in time for installation. Instead of having enough on hand in case of some sort of unexpected delay. Th contactor was new to the area and did not have enough storage or warehouse space to keep extra on hand. There was an issue with the supply chain and shipping where what was needed either got lost or delayed while being shipped back here to the US. The contractior was stuck, they did not have the funds to order from a different supplier and had no idea when his cabinets would show up, if ever. Long story short, the surety ended up having to pay out millions in order to ensure the project was completed.
For more information on Contract Surety Bonds and frequently asked questions, answered please click here.
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