By Liberty Union Insurance Group, Inc. · Published · Updated
Illustrative scenario · Not a reported client claim · No actual settlement or payout is represented.
The situation
A contractor takes on a project larger than its recent work. Material costs rise, progress payments are delayed and the contractor runs out of cash. Work stops while a supplier and a subcontractor remain unpaid.
The possible response
The owner may make a performance bond claim. Eligible unpaid parties may have payment bond claims. The surety investigates the facts and bond conditions; the response is not an automatic check for the contract amount. Completion arrangements, payments or disputes depend on the obligation and governing law.
Where the contractor still has exposure
The contractor may face reimbursement obligations under an indemnity agreement. A bond does not make an unprofitable contract profitable or erase commitments to the surety. Ordinary liability insurance should not be assumed to pay to finish the contractor’s own work.
The lesson for your next bid
Review cash flow, project scope and bond forms before committing. Ask Liberty Union Insurance Group, Inc. to start the bonding conversation early, and obtain legal advice on contract and indemnity terms. Read the performance vs. payment bond guide.
Educational information. Policy terms and applicable law control; this is not an individual coverage determination or legal opinion.