Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.
In Episode 355 of Rancho Mesa’s StudioOne™ podcast, host Andy Roberts, an Account Executive in the Surety Group at Rancho Mesa, is joined by Ted Lee, a Contract Bond Underwriter at Liberty Mutual Surety, to discuss strategies for general contractors to limit their liability when working with subcontractors. Ted shares his background and experience in the surety industry before delving into the main topic.
They explore two key strategies that general contractors can use to mitigate liability:
Subcontractor Prequalification: Ted emphasizes the importance of how general contractors select their subcontractors. If they choose based solely on the lowest bid, there may be risks associated with subpar quality. To mitigate this risk, it's suggested that general contractors require a prequalification letter from the subcontractor's surety. This helps ensure that the subcontractor is bondable, providing added assurance to the general contractor.
Performance and Payment Bonds: Requiring performance and payment bonds from subcontractors offers immediate protection to general contractors. Performance bonds protect against subcontractor default, while payment bonds guard against potential liens from lower-tier subcontractors and suppliers. These bonds could also enhance a general contractor's bonding program, potentially allowing for higher bonding limits and more favorable terms.
The conversation highlights the role of the general contractor's surety in evaluating the prequalification process and bond requirements. Ted explains that this evaluation helps the surety understand and support the general contractor's risk mitigation efforts.
They also mention that some general contractors may have automatic bond requirements for certain project sizes, but for those who don't, bond companies may step in and require subcontractor bonds when needed.
In conclusion, the podcast episode provides valuable insights for general contractors looking to limit their liability and manage risk by implementing subcontractor prequalification processes and requiring performance and payment bonds. Andy and Lee also recommend seeking assistance from insurance agents with expertise in surety bonding to navigate these processes effectively.
Listen to Episode 355 below, or on your favorite podcast listening app.