Six Ways to Avoid Bond Claims

Via Construction Executive Risk Management

Many contractors, no matter how skilled, have faced the threat of a claim against their surety bond from an unhappy client or subcontractor.

Often, an issue that seems small can become the foundation for a claim, even if the issue is beyond the control of the contractor that executed the project. It’s always a good idea for contractors to work with a lawyer who specializes in construction, so they can consult them for each project. There are some common reasons for construction bond claims, which can be avoided or minimized with some careful planning and oversight.

WHY SHOULD CONTRACTORS AVOID SURETY BONDS CLAIMS?

Construction contractors are always advised to do their best to avoid bond claims against them. The most obvious reason is financial. If the claim is successful, the contractor can be ordered to pay up to the full amount listed in the bond plus legal expenses. The surety pays the claim initially, but the construction company must repay the surety. It’s important to be familiar with how surety bonds work and remember that they protect clients and federal, state and local entities, not the construction company..

A claim can severely hurt a contractor’s reputation, especially in certain niche industries where people rely on word-of-mouth recommendations from their peers. Bonding companies also will be less willing to provide bonds in the future for a contractor that has a history of bond claims.

MINIMIZE CLAIMS

1. Reach a Settlement. Even if a contractor is guilty of violating the terms of the bond or the contract, it should still do its best to de-escalate the problem before it becomes a claim. Usually, a settlement can be carried out between the disputing parties, which will be much less troublesome than a claim even if the sum is approximately the same.

Just as with any contract, it’s important that the text of the settlement agreement is clear and will not give rise to further disputes because of ambiguity. Even though oral agreements are permissible, they are harder to prove, so a written one is always preferred. When they’re executed properly, settlement agreements can save time and aggravation, and keep a business in good standing.

2. Draft Contracts With Care. It might sound like common sense, but often it’s the contract itself that is giving rise to disputes...(READ MORE)

Questions on bonds? Contact us at 630-810-9100.

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