Failing to complete a contract might mean putting your client in the way of financial losses. Incomplete contracts therefore often make you indebted to the owner of the contract.
To mitigate some of the risks related to contract breaches, many contractors carry surety bonds. These bonds essentially promise clients that if a contractor does not complete their work, then the client can recover lost costs.
What Can Trigger a Bond Claim?
If a contractor fails to uphold their end of the contract, the client may wish to recover lost costs. One way they may do so is to file a claim against the contract’s surety bond. A successful bond claim will result in payment for some or all of the lost costs.
But remember, one element of bonding is that it is not traditional insurance. It is more of a guarantee that the contractor will compensate the client according to the bond’s terms. This means the contractor must have adequate finances in place to repay the client who files a claim.
The Bond Claims Process
If you’re a contractor who carries bonds, always stay aware of the bond filing and claims process.
Certified surety companies and agents issue these bonds. By working with a surety company, you can ensure you get the correct type of bond. Like with regular insurance, the contractor pays premiums for their bond.
- To get a bond, you often have to follow stipulations outlined in the contract you plan to enter. Or, you may decide to buy a generalized bond on your own. Either way, make sure the bond meets any bonding requirements of the contract owner.
- Provide your client with proof that you have a bond. The client should also receive guidelines on how to file a claim on the bond.
- If the client decides to file a bond claim, they should first contact the surety bond company. The bond company will then likely investigate the validity of the claim. If they determine the claim is invalid, then they won’t honor it. This means you're likely off the hook for additional costs.
- If the surety company finds the claim valid, they may take different approaches to ensure that the affected client receives compensation. They may issue a payment to the affected party themselves. The surety company will then expect you, the bond owner, to reimburse them. Or, they may notify you of pending charges that you must pay directly to the client.
If you are careful about your contractual obligations, the less likely your business will face a bond claim. Nevertheless, a strong surety bond can help any business who may not be able to complete their work.
Need a Dallas surety bond? Let us help. Call Porter-Brandenburg Agency, Inc. at 972.234.5588 and we can help you get a fast, free quote on a strong, accurate bond.