How Does a Surety Bond Get Cancelled?

  • 2 min read

If you have surety bonds on your construction projects, it’s crucial to abide by the terms outlined in the bond or by the trigger terms specified in the contract. Failure to adhere to these terms might result in the loss of coverage, as evidenced by a recent case.

A Costly Oversight: Lack of Timely Action
In a specific project scenario, a general contractor held a three-million-dollar surety bond covering themselves and their subcontractors. However, an insurance company was absolved of paying out on the bond due to the general contractor’s inaction. Despite being aware of faulty workmanship by a subcontractor, they failed to promptly terminate the subcontractor, releasing the surety company from their obligation.

The importance of proactive risk management
This incident highlights a critical aspect of managing construction projects. Mere possession of a bond doesn’t ensure complete protection. It’s vital to actively monitor project proceedings and promptly address any identified risks. Being informed and taking decisive action can prevent situations where the bond might not provide the expected coverage.

A Wake-Up Call for Project Management
The existence of a surety bond doesn’t guarantee immunity from potential liabilities. Construction project managers must actively engage in risk management, ensuring strict adherence to contractual terms and promptly mitigating identified risks. Failing to do so might render the bond ineffective in providing the intended protection.

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