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Performance Bond Backup

On August 13, 1990, Wall Street learned a lesson in the value of a UPS (Uninterrupted Power Source) when traders’ computer screens went dead. A fire in a Consolidated Edison substation in lower Manhattan knocked out power to much of the financial district. The blackout served to demonstrate how important it is for companies to have a reliable backup power supply for their computers.

Having support and something you can rely on is important for any business. If not, it could end up hurting you, much like it did for Wall Street in 1990. That’s why we think it’s important to remind you of performance bond back-ups, so that way your firm is protected as much as possible when working on projects.

Understanding a Backup Surety Bond Program

To start, we need to understand what a performance bond is. Essentially, a performance bond ensures to the project owner that the contractor will be able to finish the project, or reimburse the owner if conditions aren’t met. Since project owners take a lot of risk when choosing their contractor, they want proof that every penny of their costs will be covered if a contractor doesn’t fulfill their services as promised. This is where a surety company comes in. They show the owner that the money will be there in case something goes wrong.

Breaking Down Bonding Barriers

From that, you can see why choosing the right surety company is important. A performance bond will put the company and your construction firm in a close relationship. Both parties want the project to be completed and successful, so everyone involved needs to trust that each party will do their share of the project. 

But what is going on behind the scenes? The same relationships that work for may also work against you. Why is that? 

Let’s say you’re bidding on a project that is typically out of your range. The largest job that you’ve completed is $4 million, but the one you’re currently bidding on is $27 million. Most surety companies will not sign off on a project that is more than 2 times the largest completed construction job you’ve completed, and since $27 million is almost 7 times more than your largest project, it’s highly unlikely you’ll be issued that bond.

However, imagine you did end up getting that job and were able to complete it. That latest job potentially changed the future of your organization. It’ll be a good feeling for you and your company, but a large part of that was due to your surety underwriter issuing you the bond. 

Depending on the company you go through, some surety underwriters will feel as if you are now obligated to their business. Of course, they also owe you their loyalty since they are compensated based on budgets and quotes, but ultimately a relationship will get tested when it comes to financial gains for both parties.

The problem most contractors face is that the agent representing them owes more allegiance to the underwriter since that is their supplier. Therefore, somewhere along the way in almost every bond agent and surety underwriter relationship for contractors, they will face a biased, emotionally leveraged situation wherein the underwriter wants to keep the boundaries of the program, the premiums, and the indemnity package.

This puts contractors in a tough position. They either agree to potentially unfair terms from the surety company, or find someone new. 

This Is Where We Come In

This shows why it’s important to choose the right surety bond program and to pick a company that wants to see you expand. If you feel that your current surety is not in line with your growth expectations, we can help. So what do you need to do? The first step will be to have a telephone conversation with our insurance and surety bond specialist to determine your situation.

From there, the next step will be the execution of a Confidentiality Agreement between the
surety specialist, your company and the surety company. The good thing about this situation is that if the new surety bond backup isn’t beneficial to you at the time, you can keep it and use it later when it is needed.

Choosing the right relationships for your company may take some time, but we can help put you in a situation that makes you comfortable and will encourage a continuous growth for your business.

Trouble Getting Paid?

Get Paid Faster by Filing Your Bond Claim Online.

Filing a bond claim against a contractor can be complicated, but with, it doesn’t have to be. With decades of knowledge and experience handling surety claims, we’re here to ensure that you get the compensation you deserve for your hard work. File your first bond claim today for free and find out how easy it can be to settle your construction dispute and get the money you earned quickly.

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