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It Takes a Village: Why Individual Surety Bonds Are Rarely Accepted in Contracting Work




Trust is one of the most important factors in construction. As a contractor, you have to trust that your employees are going to do a good job; that they will be conscientious and diligent and won’t cut corners. You know that people’s livelihood and sometimes even their actual lives could be at risk if things aren’t properly done. You have to trust your subcontractors to do the same. You know that you need to be trustworthy as well, so that when you are bidding for a job, the people making the decisions know that you’ll do it correctly.

We all know that trust isn’t enough, and can even be harmful if misplaced. That’s why we sign contracts— so that everyone receives fair treatment. The need to solidify that trust is the driving force behind the surety business. It is why contractors need an ironclad surety behind them if they are going to get work. This is why it is risky, and sometimes dangerous, to turn to an individual surety bond when you are looking to secure work.

Handshake

A handshake is great, but there has to be something to back it up. Image from Wikimedia.org

The Rise of Individual Surety Bonds

Individual surety bonds are a fairly recent phenomenon; they require that a surety bond is backed by one person, or a very small consortium at most. These bonds say that if a contractor fails to meet their obligations, then the individual bondholder will pay the costs. Surety bonds are popular with some contractors because they tend to have fewer restrictions than corporate bonding companies, and they can be easier to get (though some bond companies are far easier than others).

However, speed and efficiency are not always benefits when they’re not matched by attention to detail. Many individual surety holders offer quick approval and overlook things that more established companies wouldn’t. These are touted as especially good for smaller firms who might fail with huge corporations. What could be the problem?

The Problem With Individual Surety Bonds

Many individual sureties ask for a small percentage of the contract in return, but they also retain the ability to determine what constitutes ‘small’. Every transaction comes with costs, but as you’ll see, if you’re not careful, the costs associated with an individual surety bond can be heroic.

For one thing, many of these individual sureties aren’t all they’re cracked up to be. One who claimed that his sureties were backed by “coal waste” ended up filing for bankruptcy, and instances like these are not unique. One of the leading individual surety providers who had been a vocal proponent of the policy, also had to declare bankruptcy last year.

The problem here isn’t that every individual surety provider is dishonest or corrupt. The problem is that enough of them are corrupt so that having a surety with them becomes a liability- the exact opposite of what a bond should be. Project owners are wary of a contractor who has a bond through an individual, wondering if it will cost them down the line. Perhaps even more troubling, it may become harder to obtain government work with an individual surety. That could make it very difficult to get good jobs.

Obtaining a Stronger Bond

As we mentioned before, a bond is inherently about trust. It’s about knowing that if something goes wrong, everyone is protected. It’s about understanding the realities and exigencies of life and work and about everyone being on the same team. It’s a contract, yes, and a bit of legalism, but it says “You can rely on me.”

The problem with the individual bond is that it doesn’t come with the same trust. For some companies, that might be unfair, but project owners and contracting representatives don’t want to put their faith into something that could be invalid. That’s why a contractor needs to get a bond from a trusted company with a solid reputation for helping small businesses. With the right company, you can have the speed, flexibility, and the handshake approach as with an individual, and without any of the risks. That’s the kind of trust you can build on.

Getting the contract requires the backing of a strong Surety company with a reputation you can depend on. Contact Surety1 today for a quick and fair bonding process that’ll get you to work. 




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2 thoughts on “It Takes a Village: Why Individual Surety Bonds Are Rarely Accepted in Contracting Work”

  1. surety bonding says:

    Nice blog! Surety bond is an important phenomenon but before buying any sort of bond a person should have all the detailed knowledge about what actually surety bonds are and how it works.

    1. John says:

      Thank you for the kind words. We live and love surety bonds!

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