Are you a subcontractor handling specific project parts for a general contractor? Before doing so, one must get a Headstart Subcontractor performance bond, preferably through a surety broker.
Most contractors require you to have this because it provides them financial coverage in case of default or late delivery of the project. However, having this bond is also helpful, as it helps establish your credibility as a professional and someone who might be counted upon to deliver the project on time.
How does the bond work, its features, and why should people hire a broker? Read on to find out.
What is the Headstart Subcontractor Bond?
When subcontractors default on an ongoing project, the contractors file claims against them. However, the traditional claims resolution process is lengthy, running into several weeks and months. It causes significant delays in completing ongoing construction projects, resulting in financial losses and erosion of credibility.
When contractors submit a claim with this option, it allows them to restart work on a delayed project even before the surety company has investigated the circumstances surrounding a default on a project.
How does the process work?
The bond contains URLs to two documents: Notice of Claims Letter and Mitigation Agreement. The contractor can access them whenever possible and provide a quick submission when necessary.
While submitting a claim, they usually attach a Mitigation Agreement, suggesting an alternative completion proposal for completing the delayed project.
Selecting Headstart makes it incumbent on the surety to respond within three days, including the necessary documentation and project completion proposals.
The surety company can accept or reject the complete proposal. If it rejects the proposal, the contractor will likely replace a person with another subcontractor.
What happens if one defaults?
If the principal (contractor) files a claim charging one of default under the terms of the contract, the surety company will cure the default by paying financial compensation.
However, since this bond is not insurance, fellows will have to return the amount later as part of the Indemnity Agreement. The guarantor’s liability equals the bond amount regardless of the claims.
How much does the bond cost?
It usually costs between 0.5 to 1.5% of the awarded contract price, with the exact price depending on the coverage required by the company. The warranty timelines also affect its total cost. Character, capital, and capacity are the other three factors influencing its cost.
How can a surety broker help?
A broker with knowledge and experience can help folks find a bond according to their requirements that fulfill the conditions required by surety companies. The surety broker will offer valuable advice that will help you avoid landing in a situation where you face a claim from a contractor.
An experienced and knowledgeable broker will gather the relevant information required to complete the bond application process and ensure your file is constantly updated. They will also act as the principal negotiator between you and the company.
Hiring the services of a surety broker also makes it easier to know the documents required to apply for Headstart bonds, like your financial statements, personal net worth, a copy of your banking terms and conditions, and a professional resume for employees.
A broker can also help you by reviewing your financial statements, preparing the submission, and negotiating with the company to determine the bond limits, rates, and indemnity.
You should hire a surety broker to help you get a Headstart performance bond and receive valuable advice about them. It will help you receive more projects in the future by building your credibility amongst general contractors.