Sub-Bond as a Percentage of the Project

April 1, 2011

Q: At what point should I walk away from a job where the GC is asking us to provide a sub-bond that would cover a percentage of the entire project rather than just our scope of work?

A: I recommend running rather than walking. If I understand this correctly, the GC is asking you to provide a bond not just for your portion of the work, but to help provide enough bonding capacity for the entire project. I have heard of this once before on a project where the entire design-build team each had to provide a surety bond of $1 million minimum and our member’s portion of the work was only $750,000. The insurance requirement also had a unique collective umbrella policy provided by the same carrier as the GC that covered all contractors working on the project.

To me, this concept sounds very risky. It also sounds like a GC that either can’t meet the boding requirements on its own or wants to distribute more risk downstream to the other contractors. I would also point out that there are many disputes on projects caused by sub-contractors and sub-subcontractors abandoning projects due to business failures. The potential for a lawsuit caused by these types of defaults could potentially extend to your business if you were connected in some fashion to an overall project bond. I would seek further clarification on this one to see if they are merely asking about your bonding potential, or if they are truly asking you to bond something outside of your scope of work. If at all possible, stick to providing only a performance bond for your scope of work and your contacted amount. Has anybody else heard of this? –CW

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