The Impact of Waiving Bond Requirements

October 30, 2017

Vice President of Marketing Therese Wielage was featured in the Insurance Today section of the October 30, 2017 issue of ENR magazine.

With the ongoing skilled labor shortage combined with a great need to rebuild after significant weather events such as Hurricane Irma or Hurricane Harvey, there is a dangerous temptation for government officials to waive surety bonding requirements to allow more contractors to participate in the rebuild. The danger lies in the loss of taxpayer money and the squandering of relief
funds on shoddy workmanship and contractor defaults.

Without surety bonding, there are several pitfalls:
- Mechanics liens cannot be used on public projects. Subcontractors and suppliers must rely on the general contractor's payment bond for protection. If this bond is waived, there is no way for them to collect for their work and supplies if the contractor defaults, which is particularly detrimental for small, minority and emerging contractors.
- Exempting small contractors from bonding hurts their financial stability and growth. The steps taken to qualify for bonding ensure that small contractors are managing their business well.

- Waving surety bonds risks the taxpayer's money. If the bond is waived and the contractor defaults, the taxpayers are on the hook for finding another contractor and paying to complete the work. 

- The surety company provides an assessment of the contractor's ability to complete the project and pay its subcontractors and suppliers. A surety is experienced at vaulting a contractor's capability for the job, its management, financial record and references.

-Without surety bonds, unqualified contractors may win the bid.

Government officials in their haste to help with recovery efforts can sometimes fail to consider the long-lasting and expensive consequences of waiving surety bond requirements. Surety bonds are vital safeguards for construction projects and the money invested in them.