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 nonpayment built into state laws. This is especially true for public property.
Since liens cannot be filed on public property to secure payment, every state requires general contractors to provide a payment bond for every project. The payment bond ensures that subcontractors and suppliers can get paid what they have earned, similar to a mechanic’s lien. While a mechanic’s 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 with a mechanic’s lien, making a claim against a payment bond is subject to strict procedures and requirements. In some cases, making a claim against a bond taken out by the prime contractor in the event of nonpayment can be even more complex than recording a mechanic’s lien. These liens typically need to be recorded with the county recorder and served on the property owner, but for surety bond claims filed against a commercial contractor as recourse for nonpayment, these requirements are not as simple.
Filing a surety bond claim with the county recorder is not required in many states; rather, it is sent to several parties, including the commissioner of the work, the company responsible for the surety bond payment, and the prime contractor as a course of action for nonpayment. The surety company is not normally required to receive the bond claim, but sending a copy may actually increase your chances of receiving payment.
Pro Tip: The Surety Company Does Not Like Surprises
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 will often try their best not to get the surety company involved in the claim process. This is a common contractor course of action for nonpayment issues with their employees and subcontractors. This means they’ll procrastinate in sending claims against their general contractor surety bond to the surety company because if the company finds out that the contractor is having issues paying, it will hurt their chances of receiving future bonds on jobs.
If the surety company doesn’t have knowledge of a claim until a lawsuit is filed, then the surety company doesn’t have a chance to apply pressure on the paying parties prior to litigation. Ultimately, this 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 this timetable and may result in enforced deadlines before the claim against a surety bond in construction 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, even in situations regarding commercial contractor recourse for nonpayment from the property owner, 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 that 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, but 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 that 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 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 letter requesting supporting information. The surety company will also likely ask you to fill out a sworn statement form and return that as well. This typically takes between 14 and 30 days from when you send off your bond claim.
During this time, you should get all of the materials and documents ready to send to the bonding company. This may include contracts, work orders, invoices, emails, and lien waivers. Get everything together that relates to the project and your claim so when you get your response back, you can quickly send off everything you need to submit.
Follow Up With the Surety’s Representative
When the surety contacts you by letter, it will come from a specific representative who has been assigned to your claim.
After you’ve sent back your supporting materials and sworn statement, contact your representative to confirm that everything 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 issues that may delay your claim.
What happens, though, if your representative is unable to process your claim in a timely manner?
Increase the Pressure With Mediation or a Lawsuit
If these 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 ConstructionDisputes.com to intervene on your behalf. ConstructionDisputes.com will organize all of your necessary files and get your surety bond claim processed and ready to go.