Causes of Contract Claims and How to Prevent Them
Contract bond claims can be time-consuming and costly for everyone involved. While every situation is unique, most claims stem from a few familiar problems that develop over the life of a project. By recognizing these red flags early, contractors and their partners can take action before a claim becomes necessary.
Here are some of the most common causes of contract bond claims and how to stay ahead of them:
1. Inaccurate or Incomplete Bids
Many claims begin before the project even starts. If a contractor underestimates the cost of labor, materials, or time, there may not be sufficient resources needed to complete the job. Submitting bids without reviewing plans or requirements can cause major problems down the line.
How to avoid it: Contractors should take the time to carefully review project documents before submitting a bid. Asking questions, confirming the scope of work, and basing estimates on current market conditions and labor availability are key steps in preventing future issues.
2. Weak Project Oversight
Even experienced contractors can run into trouble without strong project management. Missed deadlines, subcontractors that aren't coordinated properly, and poor communication with the project owner can lead to performance issues—and ultimately, bond claims.
How to avoid it: Contractors should schedule regular site visits, keep project schedules updated, and maintain open lines of communication with the owner and team members. Identifying risks early and responding quickly can help keep projects on track.
3. Financial Strain
Cash flow challenges are one of the leading causes of bond claims. Delayed payments, rising material costs, or taking on too many projects at once can stretch a contractor’s finances. When funds run tight, it becomes harder to pay subcontractors or suppliers on time, increasing the risk of default.
How to avoid it: Contractors should monitor financials closely and maintain strong relationships with their bank and CPA. Staying current on job costing, billing, and collections helps avoid surprises.
4. Subcontractor Failures
If a subcontractor walks off the job or delivers poor-quality work, the general contractor is still responsible for completion. This can create delays, added costs, and potential claims, especially if the contractor doesn’t have a backup plan.
How to avoid it: Contractors should prequalify subcontractors and build a dependable network of trusted partners. Having reliable relationships and backup options helps keep projects on track when unexpected challenges arise.
5. Uncontrolled Changes
When the project scope changes but isn’t properly documented, contractors may end up doing unpaid work or absorbing unexpected costs. This can cause tension with the owner and lead to disputes or defaults.
How to avoid it: A clear change order process should be in place. Every adjustment to scope, cost, or schedule should be approved in writing before additional work begins.
How Merchants Bonding CompanyTM Can Help with Claims
Even with strong planning and execution, problems can still occur on a job. When they do, Merchants provides responsive, solutions-focused support to help resolve claims efficiently. Our experienced claims team works closely with contractors, owners, and other stakeholders to understand the facts, explore solutions, and protect the contractor's ability to complete the project.
How do I get a Surety Bond?
Surety bonds are issued by Merchants Bonding Company through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by Merchants to underwrite your bond.
All information provided is subject to change.