Risk Management - Bonds and Liens

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In a recent publication of Construction Executive there is a nice article written by J. Craig Rusk on alternatives to both payment and performance bonds in the construction industry. These types of bonds are usually great places for contractors to make claims when not paid. Performance bonds secure that the contract will be performed and payment bonds secure that all payments under the contract will be completed.

Alternatives To Bonds

Rusk goes on to offer such alternatives as Letters of Credit and security on other types of real and personal property. Real property example is a mortgage and personal property is a UCC filing. These are worthy alternatives but require a lot of extra administration and seem to be a cumbersome work around for the best types of security, liens.

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Construction Liens Are Still The Best

Liens are written in statutes to protect for such situations where these bonds would not even be needed. If construction parties utilized liens in a better manner there may not even be a need for performance and payment bonds. Then again, performance and payment bonds may be more like reinsurance in addition to lien claims.
All of this talk is in respect to the private project structure. Public projects have their own statutory requirements and cannot be changed. Private projects that have sureties and bonds, allow for extra protection that the subcontractor and suppliers will be paid on the project. Nevertheless, just as with a lien claim, the subcontractor and supplier have to be proactive and make the claim and the bond and/or file the lien.

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Risk Management - Bonds and Liens
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Risk Management - Bonds and Liens
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Private projects can have other methods for collection of unpaid funds such as bonds and surety but do not forget about the old faithful statutory lien.
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