By Gina Lockwood, Esq., Merchants Bonding
The frequency and severity of claims ebbs and flows, dependent on a variety of economic influences. But whether claims are on the rise or on the decline, contractors should always understand a surety’s claims process, and have the right practices in place to mitigate potential impacts of a claim.
Understanding the Surety’s Claims Process
The claims process involves a meticulous investigation by the surety, gathering information from all parties involved. The following are the basic steps a surety undertakes:
- Reviews the bond form, contract documents, and other information collected during the underwriting process to ascertain the nature and scope of the bonded obligation
- Acknowledges receipt of a claim and request information and documents from oblige
- Discusses the situation with the principal and collect documentation and other information in support of the principal’s position
- Investigates the situation, including potential site visits, meetings with the parties, and assembly of an investigative team of construction consultants, accounts, and outside legal counsel as appropriate
- Assesses the remaining contract funds and evaluate potential options for completion of the construction contract or resolution of problems
It’s easy to see that the information contractors provide in step 3 is crucial to the outcome of a claim. Merchants suggests contractors implement the best practices below into daily operations so they’re always prepared to quickly respond with the right documents to support their position in case of a claim.
Best Practices for Contractor Preparedness
Contractors’ input in step 3 of the above process is pivotal to claim outcomes. Merchants recommends contractors incorporate the following best practices into daily operations for prompt and effective responses:
Keep a Complete Project File: Maintain a comprehensive project file that includes contracts, change orders, plans, specifications, and relevant correspondence.
Understand the Contract: Familiarize yourself with contract details, ensuring specificity in timelines, milestones, and payment terms. Issue timely notices documenting issues.
Formalize Changes: Document changes formally, outlining scope, costs, and schedule impacts.
Document Project Progress: Record project progress through daily logs and time-stamped photos collected in real-time.
Maintain Financial Records: Keep meticulous, project-specific financial documentation, including pay applications, purchase orders, invoices, receipts, proof of payment, and releases.
Emphasize Safety: Emphasize and record safety efforts, tracking trainings, meetings, and incidents.
Create a Paper Trail: Always leave a paper trail to document key communications and decisions.
Choosing the Right Surety Partner
Selecting the right surety is crucial. A reliable partner works with you to prevent claims or, if unavoidable, mitigates their severity. Explore Merchants’ common-sense approach to claims resolution HERE.
About the author:
Gina Lockwood leads the investigation and resolution of claims at Merchants Bonding Company, a role informed by her extensive private practice experience representing sureties in litigation matters. She is also the co-founder of a school for the education and professional development of surety claims professionals.
