Surety Bond vs. Subguard

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  • Surety Bond vs. Subguard

    Surety Bond vs. Subguard

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    What is the distinction between a Surety Bond and Subguard?

    When used:.

    Subguard projects typically involve annual volume thresholds in the range of tens of millions of dollars, with excesses of $100 million or more. Additionally, Subguard is generally not allowed on public projects.

    Expenses and Deductibles:

    Although there are exceptions, both personal and corporate bonds require guarantees, and there are no deductibles. The premiums for Surety Bond can range anywhere from 0.5% to 3% of the contract amount, with an average above 1%.

    Bidding on a project can provide an advantage, as Subguard policies can lower the cost. However, these policies come with co-pay sharing ranging from $5 million to $1 million, and deductibles that can range from $2 million to $350,000. Subguard premiums are typically lower, with the cost of the project being 50-70% of the total.

    Pre-Qualification:.

    The responsibility of prequalifying subcontractors, investigating any default, and responding to complete the contract or make payments lies with the surety when a Surety Bond is in place.

    In a Subguard program, the contractor screens the subcontractors and maintains the majority of risk by utilizing deductibles and co-payments, which could potentially increase if multiple defaults happen in the same calendar year. The contractor may also face challenges with subcontractors who are hesitant to disclose sensitive financial information.

    Damages:.

    The amount of damages recoverable on a bond generally cannot exceed the penal sum of the bond if numerous orders involving changes, which can pose a problem on projects, do not typically include those changes that vary from state to state.

    Subguard typically provides coverage for legal expenses as well as liquidated damages, which may encompass indirect losses, rectification of faulty work, expenses related to project completion, and a wider range of compensatory damages.

    Claim Situations:.

    Surety Bonds legal frameworks offer significant legal jurisdiction that aid in predicting the outcomes of conflicts under a bond.

    Subcontractors may also encounter resistance during the pre-qualification process, which poses financial risks for the general contractor protected by Subguard. It is important to note that the policy language does not provide clear interpretations for most reported cases. Moreover, there have been only a few reported cases, making it difficult to establish a legal precedent. Consequently, Subguard does not offer much assistance in resolving disputes and gathering legal precedents.

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