People are not generally evil. They don’t create malicious bond forms because they want to hurt everyone they meet. Usually the toughest of language in a bond form can be traced back to a bad experience the owner or General Contractor is trying to avoid in the future. We should have a good deal of empathy for the General Contractor who is trying to build a project in a timely basis when he is hit with a subcontractor default. Surety companies cannot respond fast enough sometimes to satisfy the owner. Subcontractors and sureties may present legal defenses that frustrate the process. One response is to only accept sureties that have a reputation for being fair in their claims handling. Another response is to hire an angry lawyer to write the meanest, dirtiest, toughest bond form so those SOB’s can never do that to you again.
Over the years, many frustrated Cities, Counties, private owners, and General Contractors have chosen to write the tough bond form. It is presented to the subcontractor on a take it or leave it proposition. After learning what some of the clauses can mean for a subcontractor, one sub remarked “I guess some GC’s are builders, and others are just ‘blue suede shoe’ contractors who make money by fooling the unsuspecting to sign unfavorable contracts.” Emotional words, but the subcontractor’s very livelihood is at stake, as often is the GC’s. In the last few weeks, we have met contractors where the words in the bond form made a difference. For one, had they signed the bad bond form, he would now be paying over $1,000,000 in additional costs on a $2,000,000 job. In hindsight, that is plain and simple. Another contractor would be paying out an additional $300,000 in penalties had the bond form had four additional words. Is that fair? Now that depends on which side of the contract you are on. Our experience with human nature over time is that when push comes to shove, the individual with the weak contractual terms will be both pushed and shoved. Citing the argument that an entity has a great reputation so you are willing to sign a bad contract or form usually doesn’t pan out over a long period of time. As one surety manager told us “It’s tough to make a living charging machine gun nests.” Eventually, high risk behavior comes back to haunt you.
Often a bond form doesn’t look all that bad when you first see it. A word or two might be tucked away in a secret revision and no one is the wiser until they are sitting before a jury. We believe that a good deal is only a good deal when it is a good deal for all the parties. All the parties, and that includes the surety, General Contractor, Subcontractor, and ultimate owner, should have reasonable obligations in the transaction. There should be reasonable remedies when a party does not perform. Feel free to give us a call to discuss various bond form and contract clauses and how they might affect you. We might be able to save you some dollars on your bond premium, or we might be able to increase your capacity, but if we can keep you away from a bad contractual clause, we might save you your company.