Although I typically write from the claimant’s perspective on this Construction Payment Blog, every now and again I run into a case or article about the bond and lien claim process from the perspective of other parties that are revealing to claimants. Such is the case with a news article from ENR.com about a bonded general contractor that “stonewalled” its surety: Liberty Mutual: Bonded Contractor Stonewalled Us.
Because the surety almost always has the right under its agreement with the contractor to be compensated in full for its losses, the relationship can become strained. As explained in the article, Liberty Mutual bonded a project for a large North Carolina contractor named Intercoastal Contracting, Inc. The contractor ran into hard times, a project went upside down and the surety stepped into the project to pick up the pieces.
The relationship between the contractor and the surety began to suffer. As explained in the article, “Because the surety almost always has the right under its agreement with the contractor to be compensated in full for its losses, the relationship can become strained.”
Now, the situation presented by this article is extreme. A general contractor and a project really went completely belly-up, and the surety was on a completely different page than the general contractor. This sometimes happens.
Much more common, however, is when the general contractor is solvent and competent enough to manage a bond claim or two, or more. The surety is required to field the claims as they come in, but taking over the entire project and becoming adverse to the general contractor isn’t necessary.
Nevertheless, the relationship between the surety and the general contractor does become stressed, as the surety has obligations to manage and pay the claim that may conflict with the general contractor’s wishes on the project.
Just some food for thought and an interesting situation that may help a claimant see how the bonding process works on the other side.