This is America. Everybody has the right to voice their opinion. We will all disagree on Double Bonding (Contract Certainty).
These are the facts. This will help you decide if it is a good idea or a waste.
What is Double Bonding?
Back bonding is also known as “back bonding”. This refers to when both a subcontractor and a prime (directly associated with the project owner) construction contract are bonded. The General Contractor (GC) is the prime contractor.
Trade contractors, such as HVAC, plumbing, and electrical contractors, can get some work from the GC. They may need to provide a subcontract bond that guarantees their work to the GC. The GC then provides a bond that covers all aspects. It also covers HVAC, plumbing, and electrical. This is the “double” part. It sounds pretty absurd, doesn’t it? Is that really what anyone would do?
This happens quite often. It can be helpful, essential, or a waste of money, depending on how you view it. Let’s look at it, and then you can decide.
Why Do You Love It?
Double bonding means material suppliers to subs may be able to offer lower prices because they are now covered by a payment bond.
Subs who have been approved for by a surety could perform better, which is a benefit to the owner.
A payment bond may not protect third-tier suppliers and sub-subs if double bonding has been in place. The GC’s bond cannot be reduced to the third tier (sub-sub) of a sub.
Many GCs have a policy of automatically bonding subs above a specific dollar amount. This is to avoid delays and unpaid bills.
Subcontractors who have a guarantee may be able to get work. These credentials are vital to prove that they have been subjected to professional scrutiny and that they have the support of a professional guarantee.
If major subs are bonded, the surety might find it easier to support GC bonds.
The contract may make obtaining the GC bond mandatory. The sub bonds, although not required by the prime contract, directly benefit the GC. Sub bonds are available to the GC/prime contractor as a benefit and potential claimant.
The main reason is: It is possible for the GC to insist that significant subs are bonded in order to support the GC. This could be crucial to securing the contract.
Why Do You Hate It?
Sub bonds are not required by the owner because the GC’s bond covers all work.
If the sub bonds were not anticipated, the owner could be required to pay the associated costs. The charges could be deducted from the profits of the GC if they weren’t.
The associated costs can cause the GC’s loss of the project in a competitive environment.
Sub bonds can be beneficial for GC in ensuring their surety, but they don’t reduce the bond’s cost or dollar value.
Double bonding can be a good or bad thing. It may be voluntary or stipulated by the GC. It is evident that this concept is vital. In some cases, both the GC and sub bonds may be written by the same surety. They would do it; why? They are crazy!