What Happens When a Surety Bond Claim Is Filed

Snapshot

When an obligee or claimant files a bond claim, the surety must investigate, determine liability, and choose a remedy—financing the existing contractor, tendering a completion contractor, or paying valid claimants. The process is governed by the bond form, contract, and General Agreement of Indemnity (GAI). Contractors who understand the timeline can keep communication transparent and limit financial damage.

Key Requirements

• Notice: Bonds specify how and when a claim must be filed (certified mail, electronic submission, supporting documents).
• Investigation: Sureties review contracts, change orders, payment records, schedules, and correspondence to determine default.
• Remedies: Options include financing, takeover (hiring a new contractor), tender (presenting completions options), or paying claimants.
• Indemnity: The GAI requires contractors and indemnitors to reimburse the surety for all losses, costs, and attorney fees.
• Subcontractor rights: Payment bond claimants must meet statutory notice deadlines (e.g., 90-day notice, one-year lawsuit window under Miller Act).

Contractor Playbook

1. Notify immediately. Inform the surety as soon as performance or payment issues arise—early transparency maintains trust.
2. Assemble documentation. Provide schedules, cost-to-complete analyses, change order logs, and payment histories to support your position.
3. Propose remedies. Present a completion plan, additional resources, or financing options to demonstrate commitment to finishing the work.
4. Engage counsel. Work with construction attorneys who understand bond claims to manage communications and protect contractual rights.
5. Reserve cash. Expect the surety to request collateral or repayment; proactive financial planning prevents disruptions.

Quick Reference for Surety Pros

• Maintain a standardized intake checklist covering project details, notice dates, and claimant information.
• Differentiate between performance vs. payment claims quickly; they follow different investigative paths.
• Encourage contractors to implement project controls that generate real-time documentation—better data speeds claim resolution.
• Use mediation or structured negotiations when appropriate; faster settlements reduce loss severity.