Do Your Subcontractors Need To Be Bonded?

Sometimes a contractor needs a little extra help.

If you’re a general contractor who has been hired to do a job, you may find yourself in a situation where you need someone who specializes in handling an aspect of the project that you’re not as experienced in. Or maybe there’s just a lot of work to do, and you need to bring in extra help.

Whatever the reason, that’s why there are subcontractors. But do you need to have those subcontractors bonded? Here are some thoughts on the matter.

The Whole Point Of Bonding

A surety bond is a three-party agreement between a contractor (“the principal”), the customer (“the obligee”), and the surety. The contractor takes out the surety bond, and that way, if the work doesn’t get done for whatever reason, the surety covers the costs of completion, damages, and other losses.

In essence, it’s a guarantee that the contracted work will get done, one way or another.

So, Should A Subcontractor Be Bonded?

The short answer is “yes”. The article “Why You Should Hire Bonded Subcontractors” points out that a subcontractor who doesn’t fulfill their obligation could result in delays in the project’s completion, which in turn results in a dissatisfied customer, who in turn will most likely not use you again.

But if a subcontractor is bonded, then if they somehow fall short by taking too long, or just plain taking off, then you’re covered. The surety pays for the completion of the job, and then they go after the subcontractor and take up the matter with them. You, on the other hand, are freed up to continue working on the project. Bonding takes some of the burden off of the contractor’s shoulders.

It sounds like a no-brainer. Why wouldn’t you want a subcontractor to be bonded?

Bonding Is Expensive

Over the last few years, subcontractor bonds have increased in cost and decreased in availability. The cost for bonding has to come from somewhere, and that may have an adverse effect on bidding on a job. After all, general contractors have to take into consideration their bonding as well! If a contractor is using subcontractors and they need bonding, then that’s getting to be quite an expense.

Performance Versus Payment Bonds

As if the whole issue of bonding isn’t complex enough; there are two different forms of bonding available. First of all, there’s the subcontractor’s performance bond, made for the sake of the contractor. The performance bond guarantees to arrange the completion of any work that the subcontractor fails to finish.

On the other hand, there’s the payment bond, which guarantees payment protection for the subcontractor’s suppliers (e.g. construction materials) and any lower-tier subcontractors hired to do work. So, in other words, the payment bond makes sure that anyone who supplies or works under the subcontractor gets paid.

It’s Worth It

When you get right down to it, a bonded subcontractor is the best way to go. It helps filter out the less-reputable subcontractors and gives the customer peace of mind. If the cost for bonding is prohibitive, then perhaps an alternate agreement can be reached. For instance, a subcontractor could conceivably put down a deposit that would be returned when the job was completed.

Naturally, if the subcontractor is someone that the contractor has worked with repeatedly and with good results, bonding is less of an issue. Sometimes it does come down to who you know.