Sometimes Claims are Inevitable – Here’s How to be Part of the Solution

As a contractor, it is no secret that the construction industry is consistently changing and hardships are occurring more often than we would like to admit. Between labor shortages, increased material prices, and supply chain issues, 2022 hasn’t necessarily faired well for the construction industry. Because of this, surety claims have increased significantly, often due to things outside of the contractor’s power. As a leading national surety agency, we are here to help both contractors and project owners understand the claims process in order to help mitigate some of the issues while also explaining the roles of both parties throughout the entire claims process.

When a contractor stops operations on a project, often because of labor shortages, material costs, or supply chain issues, the surety must then investigate as a claim has been made against the performance and payment bonds.

The Investigation – What does it look like?

The surety is legally required to investigate all claims, following specific guidelines from the state in which the claim is being made. Here’s what a general surety investigation looks like when a claim is made:

• Review the contract – It is important for the surety to review the original terms of the contract as the first step of the investigation. This allows the surety to understand the obligations of all parties as stated in the contract.
• Collect information and statements – The surety will then collect information and statements from both parties in order to determine the scope of the claim.
• Evaluate progress – Next, the surety will evaluate the progress the contractor has made on the project, oftentimes by visiting the site in person.
• Claim Strategy – Oftentimes, the surety will come up with a strategy in order to handle the claim efficiently, looking to the principal for cooperation.
• Claim Resolution – This is where the principal may have the opportunity to resolve the claim through a settlement or move forward with legal action.

The Principals Role in the Claims Process

It is important for the principal to offer as much insight into the project and claim as possible. This means that the principal should be in constant contact with the surety during the investigation. The better participant the principal is, the more likely the issue can be resolved prior to the end of the investigation. The principal should provide any documentation requested from the surety. The principal should also communicate with the surety in an effort to resolve the issue and avoid exposure. If word gets out that a contract has a claim pending, it can severely hurt their current and future business endeavors. If the complaints can be resolved, the principal should do everything in their power to ensure that happens. If the surety requests collateral, the principal must provide this. Lastly, if the claim does officially go through and the obligee is paid out, the principal is responsible for reimbursing the surety.

The Best Ways to Avoid a Claim

Complete the Job

The most obvious way to avoid a claim is by doing your job by following all legislative regulations and industry best practices. Complete the contract you signed and you shouldn’t have any issues.

Communicate with all Parties

From subcontractors, project owners, lenders, and your surety agency, keeping the lines of communication open is crucial. If a problem arises it is important to keep all parties in the know about potential timeline setbacks, increased fees, or labor shortages that will impact the outcome of the project.

Stay Organized and Keep Records

As a business owner, it is important to keep things organized within your business and keep records of everything. This way you have written records of every purchase, payment, schedule, and contract that applies to each individual job.

Right your Wrongs

If a complaint is made by the project owner, take it seriously. You should do everything in your power to correct any issues before a claim is made against the bond. Complying with the contract is the most important thing a contractor can do.

Mitigation isn’t Always Bad

If the obligee offers mitigating steps to correct the issue in which they made a complaint about, take advantage of it. This is a formal way of correcting any errors on the principal’s behalf without a claim being made against the surety bond.

How can The Surety Place Help

When it comes to finding a trusted surety partner, The Surety Place is the team to call. We believe that open communication is the key to a successful relationship between a principal and a surety. With over 50 years of combined experience, our team is confident that we can help you grow your business into 2023.

We establish a relationship with you in order to truly understand your business focus whether large or small, complicated or difficult.  As one of the only true specialists within the industry, we supply access, partnerships and specialty programs with numerous “A” rated sureties across the nation. We are here to help you service all your bonding needs with no appointments or contracts necessary.

Because of our industry knowledge and expertise coupled with our ever-increasing specialty programs, we have the unique ability to write your bonds when no one else can, and because of our relationship with you, we will stand behind you in support to achieve your agency or business objectives.