Benefits of Bonds: Surety Brings Prominence and Protection

May 17, 2017

Contractors with reputable surety support reap considerable reputational benefits. A surety bond firmly states that a contractor has the character, capacity and capital to perform the job.

The message to public officials and private owners is simple: If the contractors and subcontractors you choose for the construction project are bonded by a reputable surety company, then as a steward of the taxpayer or investor money, you have done your job well.

Construction company leaders know that their businesses are risk-filled enterprises. Over the past several years, we've seen that even the very capable and well-established contractors with many decades of experience can reach the point of failure.

The Surety and Fidelity Association of America (SFAA) reported a 22% failure rate through arguably the worst recession in decades. Quoting BizMiner, SFAA said that there were nearly 900,000 general contractors, heavy construction and special trade operators in business in 2009; by 2011, 200,000 of them were out of business. Even if the contractor has gone through the rigorous prequalification of a good surety, sometimes default is unavoidable.

The good news for professional bonded contractors is that if events begin leading to a default, a professional surety agent and underwriter can help save a project and a business's reputation.

Not only does the surety protect the project owners and taxpayers by providing performance and payment bonds, but it also protects the contractor if a default is declared improperly. In that case, the bond will have preserved the contractor's right to pursue legal action.

Suretyship has a long history dating back to clay tablets in 2750 B.C. To this day, professional surety agents and companies provide the most reliable way to mitigate construction risk.