Reduce Subcontracting Risks with Surety Bonds

In industries that require a lot of projects and coordination to get the job done, there is a lot of subcontracting. The construction industry in particular relies heavily on subcontractors. Many companies find it financially beneficial to hire another company to complete work. Although subcontracting can be lucrative for businesses with a competitive advantage, there are still some inherent risks associated with subcontracting. Fortunately, much of the risk can be minimized with a surety bond.

Protecting Against Performance Risks

Allowing another contractor to perform your contract duties allows your company to focus its resources on other projects. However, even companies you’ve worked with in the past can fail to perform the work as specified in the requirements of the contract, exposing your business to the possibility of being sued.

Surety bonds may protect your business when a subcontractor doesn’t complete the project based on the requirements. With a surety bond in place, you transfer performance risks from you to the surety company. Although you are still responsible for ensuring the work is performed as prescribed, you now have the financial backing of the surety company if the subcontractor defaults.

Overcoming Financial Risks

Subcontracting also exposes your business to financial risks based on the subcontractor’s finances. Since many subcontractors rely on their employees to do contract work, there is always a possibility that they will not be able to pay their workers. Without the financial means to pay for work, workers may stop working, which jeopardizes your project. Purchasing a payment bond can help you avoid this potential disaster. With a payment bond, you get the comfort of knowing that if your subcontractor doesn’t have the financial means to pay their employees, the surety company will help remedy the situation.

Avoiding Safety Risks in Subcontracting

Within the construction industry, there are more instances of on-the-job injuries, some of these injuries lead to the death of workers. Due to the nature of construction sites, there will always be accidents; however, you can protect your contract from safety issues by incorporating safety requirements within your performance requirements. Ancillary bonds, another type of surety bond, prevent liability exposure by forcing subcontractors to meet certain safety requirements.

There are many risks associated with subcontracting, but you have the ability to protect your company with surety bonds. Depending on the type of contract, you can purchase a host of different surety bonds to protect your business, from the beginning of the project to the project’s closure.