The recession had a broad impact on contractors, but it seems to have hit subcontractors particularly hard. Generally, subcontractors are small businesses with modest balance sheets, and even minor business disruptions can cause defaults. Subcontractor performance and payment bonds (sub-bonds) are one of the best ways for prime contractors to guard against such defaults.
Unlike other products, sub-bonds offer a combination of payment and performance protection. Independent agents have an opportunity to educate their customers about the benefits of these financial tools.
Sub-bonds: qualified, motivated and solidly backedBefore issuing a sub-bond, a surety takes a variety of underwriting steps to gauge the subcontractor's stability. Surety underwriters conduct detailed reviews of a subcontractor's balance sheet, which gives them a view into the subcontractor's financial strengths and weaknesses. Underwriters also explore the subcontractor's technical abilities and managerial skills.
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