When Should a General Contractor Require Subcontractor Surety Bonds?

subcontractor surety bonds

Subcontractors are a critical tool for general contractors. When a general contractor doesn’t have the time, people, or skills to complete a component of a project, they hire a subcontractor to do it for them. Enlisting subcontractors makes it easier to complete projects on time, on budget, and up to quality standards. 

However, there’s also a risk in relying on someone else to do the job, which is why subcontractor surety bonds are used to guard against that risk. So when should general contractors require subcontractor bonds? That’s what we’ll cover in this blog.

What is a Subcontractor Surety Bond?

General contractors need to obtain a number of different types of surety bonds before finalizing most construction contracts. Those bonds hold the general contractor financially liable if he doesn’t meet the standards for speed, cost, quality, or conduct. Subcontractor bonds (also called subcontractor performance bonds) work much the same way. If a subcontractor fails to perform as expected, the subcontractor surety bond holds them financially liable for damages caused to the general contractor. 

Why are Subcontractor Surety Bonds Required? 

General contractors use these surety bonds as protection against risk. Specifically, the risk that a subcontractor causes financial damages by, for example, going over budget or missing deadlines. Surety bond agreements hold the bonded principal (in this case the subcontractor) financially liable, which creates a strong incentive to meet the performance standards required by the general contractor.

And since the surety agency that backs the bond guarantees payment for valid claims against the bond, the general contractor knows he has a way to seek and receive compensation for damages. Surety bonds create trust between two parties – a general contractor and subcontractor – by making one accountable to the other. 

When are Subcontractor Surety Bonds Required?

The general contractor decides when they’re required, how large they must be, and what performance standards they hold a subcontractor accountable for. However, subcontractor surety bonds aren’t always necessary. Some general contractors waive the bond requirement on small, quick, or minor jobs. When they are required, it’s important to seek out a subcontractor surety bond ASAP. Work can’t move forward without one. Partner with Viking Bond Service to fulfill surety bond requirements fast and hassle-free. 

What’s the Difference Between a Performance and Payment Bond

A subcontractor performance bond isn’t the same as a subcontractor payment bond, which is another common kind of construction bond. The differences between the two are as follows:

  • Performance bonds hold the principal (the bonded subcontractor) liable for damages caused to the obligee (the general contractor) by performance issues. 
  • A payment bond holds the subcontractor liable for payments they owe to their own subcontractors and suppliers. Many subcontractors need both bonds. 

When Should General Contractors Require a Subcontract Surety Bond?

Subcontractor bond requirements guard against a common kind of risk. But they also make it harder to hire a subcontractor. Here are some instances when it’s smart to make subcontractors get surety bonds:

  • When state and local laws require bonds.
  • When working on a public project for a federal, state, or local government.
  • When a subcontractor plays a critical role in completing a project.
  • When a subcontractor offers specialized expertise that isn’t replaceable.
  • When a subcontractor poses a large liability.
  • When a subcontractor is new or unknown.
  • When a general contractor wants to expand and manage risk along the way.

How to Obtain a Subcontractor Surety Bond?

Anyone required to get a surety bond will need to:

  • Find a surety agency.
  • Complete a bond application.
  • Agree to a credit check.
  • Supply the bond requirements.
  • Provide additional info (as necessary).

Underwriters will quote the bond cost based on the size of the bond and the applicant’s credit. It will be a small percentage of the bond total – more or less depending on the risk posed by the subcontractor. For those with credit concerns, Viking Bond Service has created a special program to help more people acquire bonds even with a low credit score or spotty financial history. 

Viking Bond Service Complete Source for Subcontractor Surety Bonds

For subcontractors, getting surety bonds is just part of doing as because most construction jobs include bond requirements. And that means they need a surety bond partner to rely on to make bonding easy, budget-friendly, and fast – the first time and every time after.

That’s why subcontractors choose Viking Bond Service. We offer the bonds that subcontractors need (most types and sizes) and deliver the service everyone hopes for. Don’t let bond requirements be a bigger burden than they need to. Work with Viking Bond Service instead!
Contact us or call 1-888-278-7389 for more information or request a bond quote online to receive a price within 24 hours.