Strategies to Getting Paid on Surety Bond Claims
Working in the construction industry comes with a lot of rules and regulations. One of the most common issues within the industry is payment. Since getting paid for your work is a top priority, there are several safeguards against nonpayments built into state laws. This is especially true for public property.
Since public property cannot be liened upon to secure payment, every state requires the general contractors to provide a payment bond for every project. The payment bond ensures security for subcontractors and suppliers to get paid on what they have earned, similar to a mechanics lien. Whereas a mechanics lien provides an interest in the property being improved, a surety bond provides a specified amount of money set aside for ensuring payment, which is generally provided by a surety company.
Sometimes, however, these payments aren’t as simple as they sound. If you want to make sure your company gets paid for the work they do, follow these tips and strategies.
How To Make a Bond Claim
First, let’s look at how to make a bond claim.
Just like a mechanics lien, making a claim against a payment bond is subject to strict procedures and requirements. In some cases, this process can be even more complex than recording a mechanics lien. These liens typically need to be recorded with the county recorder and served on the property owner, but for surety bond claims, these requirements are not as simple.
Filing a surety bond claim with the county recorder is not required in many states, but rather is sent to several parties, including the prime contractor, the commissioner of the work and potentially the surety company. The surety is not normally required to receive the bond claim, but sending a copy may actually increase your chances of receiving payment. Why is that?
The Surety Company Does Not like Surprises
Strategy Tip #1 – Sending Notice of the Claim to the Surety Company Increases Your Chances of Getting Paid Sooner than Later.
Contractors typically pledge a substantial amount of personal and corporate assets to the surety company to obtain the bond. Since there’s so much at stake for their business, contractors try not to get the surety company involved with the claim process. This means contractors will procrastinate sending in claims to the surety company, because if they do find out that the contractor is having issues paying, it will hurt their chances for receiving future bonds on jobs.
If the surety company doesn’t have knowledge of a claim until a lawsuit is filed, then the surety doesn’t have a chance to apply pressure on the paying parties prior to litigation. Ultimately this just means the claim process will be more expensive and more time-consuming.
When a surety company is informed of the claim, it requires a lot of documents and time to gather everything. Waiting too long disrupts the timetable, and may result in enforced deadlines before the claim has a chance to be resolved. This makes litigation inevitable in some situations, which is something contractors and the surety company would like to avoid at all costs.
Since litigation is the last thing anyone wants, filing a bond claim can resolve the issue rather than dragging it out and making it more expensive. The surety company will appreciate you filing a claim in advance and will put pressure on the contractor to get your money. All in all, it’s a smart business move that shows the contractor you’re serious about the payment, but also allows them time to get you your money.
Steps to Follow After Filing a Bond Claim
Filing a bond claim is an effective way to start the process of getting paid, however it’s also common for things to get quiet once a claim is filed. What is going on? When can you expect to get paid? Is there anything you can do to push your claim along? Here are some steps you should consider once you’ve filed your claim.
Send A Copy Of Your Bond Claim To Everyone, Especially The Surety Company
Depending on the type of project subject to your claim, there are requirements as to who must receive your bond claim. Don’t stop with just the required parties, however. Send a copy of your bond claim to absolutely everyone who is interested in the project and who may be affected by the claim. This means the public entity commissioning the work, the prime contractor, the contractor who hired you, the construction manager and the surety company should get a copy of your claim.
Wait for a Reply
Yes, that’s right. You need to wait.
Once your claim is sent off, all you can do at this point is wait for a response from the bonding company about your claim. Once you do get a response, you’ll likely be requested for more information and will need to fill out a sworn statement form. This waiting period can take anywhere from 14 to 30 days.
Once your bond claim is sent off, you are essentially waiting for the bonding company to receive the claim, formally open your claim, and then send you a responsive letter requesting backup information. The surety will also likely ask you to fill out a sworn statement form and return that as well. This typically takes between 14-30 days from when you send off your bond claim.
During this time you should get all the materials and documents ready to send to the bonding company. This will include contracts, work orders, invoices, emails, lien waivers and much more. Get everything together that relates to the project and your claim, that way when you get your response back, you can quickly send off everything you need to.
Follow-up with the Surety’s Representative
When the surety contacts you by letter, you will be contacted by a specific representative who has been assigned to your claim.
After you’ve sent back your backup materials and sworn statement, contact your representative to confirm it was received. You’ll want this confirmation in writing, so if they confirm it by telephone, send a letter or email to make a record of their confirmation.
Once that’s confirmed, you’ll want to keep following up with your representative once every week or two. Each state has rules for how long a surety can take to process your claim, but it is usually somewhere between 30 and 60 days from receipt of your materials. By contacting your representative frequently, you’ll be keeping your claim at the top of their mind and you’ll be able to quickly resolve any little issue that may delay your claim.
What happens though if your representative is unable to process your claim in a timely manner?
Escalate the Pressure with Mediation or a Lawsuit
If the above precautions do not allow for a smooth claim process, then you may need to escalate the situation. To help solve issues like these, you can either file a lawsuit, or hire Construction Disputes to fix the problem. Construction Disputes will organize all your necessary files and get your claim processed and ready to go, without having to incur any attorney fees.
As a summary, let’s break down the steps you need to take when wanting to get paid on your surety bond claim:
- File your bond claim.
- Send a copy of your claim to all parties involved in the project, including the surety company.
- Wait for a response from the bonding company.
- Follow up with your surety representative.
- File a lawsuit or another alternative if you still haven’t been paid.
With these steps, your claim will go more smoothly and will be effective in getting you paid.