Business Case: the surety bond

Example : claim from the sub-contractor on the surety bond for the labour and materials.

The current economic situation can unfortunately lead a company to bankruptcy. The construction industry might not avoid the sad reality of the business world.

As a sub-contractor, it is essential that you use the tools at your disposition to avoid the same fate as a general contractor on the verge of bankruptcy.

Steps to Take in Case of a Claim

In the event the general contractor does not pay, here are a few steps to take in order to report the claim to the surety:

1. Delay
It is important to determine the delay present in the surety bond to ensure that the surety does not refuse your claim.

2. Reclamation Letter to the Surety

• Indicate that it is a claim in virtue of the surety bond for the payment of the labour and materials
• Write down the number of the surety bond
• Identify the project
• Name the beneficiary (generally it is the owner of the project)

Three Elements Must Be Mentioned in the Letter

1. The principal is in default of payment (it consist in the person who obtained the surety bond for the payment of the labour and materials)
2. The amount that the principal owes you
3. The payment request to the surety

3. Additional Information

The surety will ask you for copies of your bills, purchase orders, delivery orders and the signed contract with the principal.

4. Delay Following a Claim

The delay can vary. The most important step to remember is to report your claim in the set delays. Following this, the surety can let the general contractor manage his accounts payables while keeping an eye on him.

We recommend you to inform your lawyer before initiating formal procedures.

To learn more on this subject, please contact Matthieu Séguin, BAA, C.d’A.A., CRM specialist in case of a claim, to the following address: mseguin@lareau.ca or call 1.866.959.4155.