The frequency and severity of claims ebbs and flows, dependent on a variety of economic influences. But whether claims are on the rise or on the decline, contractors should always understand a surety’s claims process, and have the right practices in place to mitigate potential impacts of a claim.
The claims process involves a meticulous investigation by the surety, gathering information from all parties involved. The following are the basic steps a surety undertakes:
1. Reviews the bond form, contract documents, and other information collected during the underwriting process to ascertain the nature and scope of the bonded obligation
2. Acknowledges receipt of a claim and request information and documents from oblige
3. Discusses the situation with the principal and collect documentation and other information in support of the principal’s position
4. Investigates the situation, including potential site visits, meetings with the parties, and assembly of an investigative team of construction consultants, accounts, and outside legal counsel as appropriate
5. Assesses the remaining contract funds and evaluate potential options for completion of the construction contract or resolution of problems
It’s easy to see that the information contractors provide in step 3 is crucial to the outcome of a claim. Merchants suggests contractors implement the best practices below into daily operations so they’re always prepared to quickly respond with the right documents to support their position in case of a claim.
Best Practices for Contractor Preparedness
Contractors' input in step 3 of the above process is pivotal to claim outcomes. Merchants recommends contractors incorporate the following best practices into daily operations for prompt and effective responses:
Keep a Complete Project File: Maintain a comprehensive project file that includes contracts, change orders, plans, specifications, and relevant correspondence.
Understand the Contract: Familiarize yourself with contract details, ensuring specificity in timelines, milestones, and payment terms. Issue timely notices documenting issues.
Formalize Changes: Document changes formally, outlining scope, costs, and schedule impacts.
Document Project Progress: Record project progress through daily logs and time-stamped photos collected in real-time.
Maintain Financial Records: Keep meticulous, project-specific financial documentation, including pay applications, purchase orders, invoices, receipts, proof of payment, and releases.
Emphasize Safety: Emphasize and record safety efforts, tracking trainings, meetings, and incidents.
Create a Paper Trail: Always leave a paper trail to document key communications and decisions.
Choosing the Right Surety Partner
Selecting the right surety is crucial. A reliable partner works with you to prevent claims or, if unavoidable, mitigates their severity. Explore Merchants' common sense approach to claims resolution HERE.
How do I get a Surety Bond?
Surety bonds are issued by Merchants Bonding Company (Mutual) 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 the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.
All information provided is subject to change.