Mon. Jul 4th, 2022

When you’re working on a construction project, there are many different moving parts that need to be in place for things to run smoothly. Unfortunately, things don’t always go according to plan, and you can’t always foresee the potential issues that might arise. When they do occur, subcontractor default insurance is essential to help protect your project from any setbacks it might face as a result of a sub contractor failing to meet their obligations. With so many different ways that things can go wrong when working on a construction project, it’s important for general contractors and sub contractors alike to take steps to protect themselves against any financial repercussions if something goes awry. This article will explain why subcontractor default insurance is essential for any construction project, outlining three main reasons why it is so important.

Knowing the Risks of Working with Subcontractors

One of the biggest risks of working with subcontractors is that they’ll go out of business before completing their portion of the project. This could happen for any number of reasons, including changes in the subcontractor’s financial circumstances, unforeseen issues with their own project schedule, or perhaps a commercial dispute between the subcontractor and another party. If the subcontractor is required to provide collateral to ensure that they’re able to complete the work, but then goes out of business, it’s unlikely that they’ll be able to make any future payments on the project, let alone repay the up-front collateral that they’ve been provided with. This means that the general contractor is left to deal with the brunt of the financial impact on their own, which could have a big impact on the project’s completion date and budget. That’s why it’s important to understand the risks of working with subcontractors, and take steps to protect your project from any potential issues that could arise as a result of this.

Insurance Helps Recover Losses from a Subcontractor Failing to Perform

When a subcontractor fails to perform, not only will you not receive the benefit of their work on the project, but you’ll also need to make up the lost time by hiring a new sub contractor to complete their obligations. This means that you’re losing time on the project schedule, and likely incur additional costs to bring in a new sub contractor to work on the obligations that were supposed to be completed by the original subcontractor. By obtaining subcontractor default insurance, you can recover some of the costs that you incur as a result of the original sub contractor failing to perform. This could include the costs associated with hiring a new subcontractor to take over their responsibilities, as well as any additional costs that you incur as a result of the original subcontractor failing to perform.

 

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Default Insurance Helps Protect Your Brand and Reputation

Beyond the financial risks that arise when a subcontractor fails to perform, there are also reputational risks. If a subcontractor fails to complete their obligations on a project, it could be damaging for you or your company’s reputation. Customers and potential clients could begin to question your ability to deliver on future projects, or perhaps your commitment to quality. This could have a serious impact on your future business, as potential customers are likely to take the subcontractor’s failings as a sign of what they can expect from your company. This is where default insurance can help protect your reputation. If a subcontractor fails to complete their obligations on your project, and you’ve obtained default coverage, you’ll be able to recover some of the costs associated with hiring a new subcontractor to finish their work.

Contractual Coverage Helps Protect Against Losses Caused by a Subcontractor Failing to Perform

If you’ve entered into a contract with the subcontractor that clearly outlines the work that needs to be completed, and the subcontractor fails to perform, you’ll have a contractual claim against them. In some instances, such as in a construction project, the subcontractor will have been required to provide performance bond to protect against this. However, even if there is a performance bond in place, it’s still possible that the subcontractor goes out of business before being able to claim against the bond, leaving you to bear the brunt of their financial obligations on the project. This is where contractual coverage can help protect you as a general contractor. You’ll be able to recover some of the costs that you incur as a result of the sub contractor’s failure to perform, even if a performance bond is in place. This coverage can be included in your construction contract, or alternatively, you can take out a stand-alone contractual coverage policy to help protect against losses caused by the subcontractor’s failure to perform.

Subcontractor Default Insurance VS Performance Bonds

A subcontractor default insurance policy and a performance bond are both designed to protect your interests, but they work in slightly different ways. A performance bond will be held by the third-party bond holder, who will then be able to recover the full amount of the bond if the subcontractor fails to perform. Subcontractor default insurance, on the other hand, will require you to make a claim against your policy in order to be able to recoup the costs associated with a subcontractor failing to perform. There are a few things to consider when deciding whether or not to take out a performance bond, as well as which type of coverage to take out. First, you’ll need to establish a clear understanding of how much coverage you’ll need for your project. Next, you’ll need to decide how you want that coverage to be provided. Finally, you’ll need to ensure that the coverage is actually in place for your project like Axcess Surety can help you with this.

Conclusion

A construction project is likely to see a number of different subcontractors come and go throughout the course of the project. This means that being able to provide assurance to your customers that you’re able to meet the project’s obligations is critical, as this is what will win you new business. One of the primary ways that you can do this is through subcontractor default insurance. When you work with sub contractors on your construction project, it’s essential to take steps to protect yourself against any financial risks that could arise as a result of a subcontractor going out of business. Subcontractor default insurance is designed to help protect against the financial risk of a subcontractor failing to perform, and is essential to help protect your project from any setbacks it might face as a result of this.

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