Bonded subs?

[ConCretin]

I've got a question for ya'll. I often see references on here to 'bonded' contractors. This bond supposedly provide a blanket guarantee against any defective or incomplete work on any job they do? Up my way, bonds are only found on large commercial projects.

We do a lot of bonded work. We purchase a performance and payment bond from a surety at the request of a customer for a specific project. If we fail to complete the job or pay our suppliers, the bonding company steps in and completes the work and pays the bills. The company and usually the owners of the company indemnify the bonding company so it's not something you ever want to let happen.

Do you really have contractors in your state that carry some kind of bond that provides coverage all their work? Is this somehow tied to licensing? Who provides the bond? I'm having trouble figuring out how this would work.

 

[marineman]

In Wisconsin it's one or the other in order to get your contractor license. Either a bond or proof of liability insurance.

 

[ConCretin]

In Wisconsin it's one or the other in order to get your contractor license. Either a bond or proof of liability insurance.

Maybe I'm getting thrown by the terminology. A traditional P&P bond and liability insurance are two very different things.

So i did a little more research on the Wisconsin statute. The bond in question is a License and Permit bond, which does in fact allow a homeowner to file a claim if the contractor "breaks the law". I'm not sure how broadly this would be applied but it does offer some protection.

Wisconsin does require either a liability policy or a bond as proof of financial responsibility. I'm not sure how this makes sense. The liability policy will cover your property if he burns it down while the bond covers workmanship and business practices.

I did note that the bond amount is only $25,000, which is somewhat limited especially if the contractor has multiple claimants. I suppose it's better than nothing. The larger value might be in the vetting the surety will do before writing a bond. Bond premiums are probably only a few percent of the bond amount. This puts the surety at significant financial risk if they write to the wrong contractors.

I only bring the subject up because I was curious and to help us all understand just what protections we have and limitations of the same.

 

[Stuart in MN]

Minnesota is similar to Wisconsin, I think - I found this on the state website: http://www.dli.mn.gov/ccld/pdf/registrationfaq.pdf It's kind of confusing but it appears contractors need to register with the state, but there are exceptions if they are either licensed or if they have a bond.

 

[machsnell]

Bond protects gc and owner.

Gc gives owner price based on bids and gets awarded the job. Gc contracts with sub.

For large multiyear project gc' s are at significant risk if a sub bails and was too cheap so to limit downside for gc and owner bond is applied to work. Gc' s only have single digit profit on jobs and it protects them and owner.

Bonds are cheap 2 to 3 percent and paid for ultimately by the owner. We tack it onto our bid if they are required at contract.

Small jobs never larger or government jobs sometimes.

Bondability is tough to get and pretty stringent. Once you can get millions bonded you are set apart from many smaller contractors.

Sent from my SM-G930V using Tapatalk

 

[6768rogues]

In NY, public construction has bonding requirements. Private construction is up to the buyer. Bonding costs a percentage of the job price. If a contractor is financially solvent and can handle the scale of job considering his finances and total work load, he can get bonding. I have had bonding and it is not a big deal unless the contractor is financially shaky. The real question is whether you want to pay the extra cost. Based on the contractor’s finances and history, the bonding company sets a bonding limit. The total of his bonded jobs cannot exceed his bonding limit. There must be contractors who do public construction who are bonded if no one else is.

 

[ConCretin]

As I mentioned in my post, I'm familiar with bonds on large commercial jobs, which are project specific. I was curious about the bonds carried by residential contractors that cover all the work they do. I've since learned this is a requirement of licensing, which we don't have up here in Maine.

Quite frankly, I'm amazed this works. I'm surprised sureties have any interest in providing a blanket guarantee of a contractors performance for a premium that represents a couple percent of the potential claim. If a homeowner is unhappy for any reason, legitimate or not they can file a claim.

I suppose that contractors, being a clever lot have figured out how to protect themselves and probably perform better, which is obviously a good thing. That and the cost and hassle of litigation probably keeps the number of claims down.

Anybody out there ever successfully filed a claim against a contractors license bond?

 

[firebirdparts]

It might be more instructive to find an example of somebody who actually got paid by the insurance company due to contractor malfeasance. I bet that is not an easy process.

 

[tapered-pin]

Anybody out there ever successfully filed a claim against a contractors license bond?

I have, but as you mentioned previously, it was on one of my commercial projects. (I'm a GC)

 

[77Birdman]

I am a Licensed General Contractor in Maryland. You are absolutely correct about bonding on commercial projects. My previous company was medium sized and we were about 90% commercial, the use of bonds for large jobs was a common practice. They would be delivered with a bid package. As far as contractors being Licensed and Bonded, this is the way it works with MHIC.(Maryland home improvement commission) When one applies for a license they must prove to the commission that they are financially stable. This can be done by listing all of your assets. If you do not have at least 25k in collateral you must put up a bond for that amount. Thus comes into play "Bonded contractor". The commission will reimburse a homeowner up to 25k for a legit complaint and they need to know they can get it back from the offending contractor. FWIW I am not bonded, but fully licensed and insured.