We’ve emphasized, in previous blogs, that a contractor has control in avoiding claims. The best way to avoid having a claim filed is to make sure that the contractor fulfills and documents all contractual obligations. But, if the contractor is not able to fulfill the contractual obligations, a claim may be filed. This will hurt the reputation of the contractor in many ways.
The Financial Burden of a Claim
First of all, the financial burden will be evident once the contractor is found to have defaulted on the contract. The contractor may have to pay the full amount. They may also have to pay any legal fees associated with the claim. A surety bond is not meant to protect the contractor. Instead it ensure the project owner that they will not lose out on money if the contractor defaults on the contract. If the surety bond producer deems that the contractor has defaulted on the contract, they will pay the project owner. They will then seek reimbursement from the contractor.
The Risk of Ignoring Claims
But what if the contractor decides not to pay the claim? They may feel they weren’t in the wrong or may not have the financial means? The problem with thinking is that a surety bond producer will look at the contractor as a risky applicant. The best case scenario, is that the contractor may be bonded at a much higher rate. The worse case scenario, the contractor may not be bonded again.
Having a good relationship with a surety bond producer is tantamount to success in the construction industry. This is true both in the private and public sector. If, for example, the contractor fell on hard times and defaulted only once but had a solid history of completing jobs without claims. The surety bond producer may advocate to the underwriter that the default was a one-time occurrence, and to bond the contractor at a higher rate, but still bond them.
Effect on Reputation
Finally, reputation. Being bonded is something that many contractors take pride in. It is a badge of honor that they have completed projects successfully, on time and without claims. By not paying a claim or by having multiple claims filed, a contractor’s reputation becomes untrustworthy, irresponsible and unattractive to work with.
The best way to succeed in any industry is to have a solid and trustworthy reputation. But this doesn’t come without work. Working hard to make sure that a reputation is intact, trusted and confident can make a company successful. Having a knowledgeable surety bond producer, with a great reputation, can help to avoid claims.
We here at Surety Bond Professionals pride ourselves on OUR great reputation, that we have built up over the decades. We work fast and efficiently to get you the best surety bond that we can, to guide you through the process, and educate you so that unsubstantiated claims bear no weight. Contact us today to begin assessing your surety bond needs and building a relationship which will help to grow your business.