Effective October 1, 2023, Rooney Insurance will be located at 5100 E Skelly Dr, Suite 1010 in Tulsa, Oklahoma
Effective October 1, 2023, Rooney Insurance will be located at 5100 E Skelly Dr, Suite 1010 in Tulsa, Oklahoma
In the world of Commercial Construction, trade subcontractors of all varieties that bid to Construction
Managers and General Contractors to obtain work often must be able to be “Bonded and Insured.” This
article will focus on the bonding or contract surety requirement often found in such subcontract
documents.
A surety bond is an agreement where a surety assures the obligee (in this case the Construction Manager or General Contractor) that the subcontractor will actually perform the work they are obligating themselves to in the contract documents. Likewise, the owner of a project (also an obligee) may require the Construction Manager or General Contractor (principal) to be bonded for the performance of the prime contract to build the structure.
Premiums for such bonds are based on expected losses calculated by actuaries. Eligibility or
qualification for subcontractors to obtain bonding is more akin to applying for business financing. The
surety is calculating their risk of issuing a bond based on the probability of the trade subcontractor
remaining in business and capable of what they are obligating their business to perform. They will want
to know much about the subcontractor’s professional abilities, experience, and their financial status.
Ability to withstand financial headwinds, labor shortages, delays in material availability, etc. are all
important risk factors for surety underwriters to take into consideration. Once the needed information
about the business is collected from the subcontractor, the underwriter may request a meeting with
the owner(s) to talk about their past job experiences, project sizes, current aggregate workload for all
projects – bonded or not, and projected work coming up in the next year.
If a subcontractor is wanting to bid on a larger-than-usual project than they are accustomed to working
on, the underwriter will want to know how that job will fit into their current work on hand, how the job
will be financed and likely a projection of the return on that investment. In part 2, we will provide a
brief outline of what a subcontractor will likely need to provide in order to be prequalified for
construction contract surety bonding.
A Bid Bond is often required to qualify as a viable subcontractor bidding on a package of work to a
Construction Manager or General Contractor. The bid bond assures that the submitted bid was
provided in good faith and that the bidder will enter into a subcontract at the price bid and provide the
required performance and payment bonds.
The Performance Bond assures the Construction Manager or General Contractor that in the surety’s
opinion, the subcontractor is capable and qualified to perform the contract. It protects the Construction
Manager or General Contractor from financial loss should the subcontractor be defaulted – failing to
meet the terms and conditions of the subcontract.
The Payment Bond assures that the subcontractor will pay their suppliers, lower tier subcontractors and
laborers associated with the project.
Working with an agency that is experienced in assisting subcontractors obtain construction contract
surety bonds makes all the difference. If you need this kind of assistance, please reach out to us and we
can guide you through the process. Waiting until the last minute never works well, so start today and
let us help you succeed.
About Rooney Insurance Agency
Rooney Insurance Agency, established in Tulsa, Oklahoma in 1960, has provided customized business and personal insurance and employee benefits solutions to individuals and businesses in the state of Oklahoma and throughout the United States. We work to ensure that each client’s insurance coverage fits their specific needs, addresses their key risks, and protects their valuable assets. For more information on how we can help you today, contact us at (918) 582-0565.
