When hiring a contractor, consider protection

Like any major purchase, when hiring a general contractor you probably take several things into consideration – references, portfolio and price – to name a few. But instead of a finished product that you can see/feel/touch, in a way, you’re purchasing a General Contractor’s experience and reputation. While most contractor’s will work to keep customers satisfied, you don’t really have any guarantee that the job will end up the way you wanted, that an unforeseen event won’t ruin your plans, or that your contractor will come through the way they’ve promised.

So what will you do if your contractor skips town without paying subcontractors leaving a lien on your property, if something impacts the timeline, cost or overall completion, or if there’s a dispute over the terms of your contract? Bonding is one form of protection you may have heard about but do not yet understand. Often at PJ Callaghan our reputation for excellent service precedes us and we do not use bonds. However, if you’re unfamiliar with your contractor or concerned for any reason, asking them to obtain a bond is a reasonable and fair way to ensure you do not incur any losses.

Daniel Oaks, our Surety Bond Specialist with Nielson, Wojtowicz, Neu & Associates, had a few things to say about the importance of Bonds, how they work and why you should consider them:


“A Surety Bond is a good thing for owners, investors and lenders because it acts as a third party guarantee that your project will a) be done to the terms and specifications of the contract and b) that you will end up with a lien-free finished project. Without a bond you’re putting a lot of trust in the contractor. In fact all government projects over a certain threashold require the winning bidder to obtain a bond to protect the taxpayer.

“To the average person bonding can sound a lot like insurance – you pay a small percentage and if something goes wrong the company makes you whole. The biggest difference between insurance and bonding is that there are three parties involved in bonding. The Contractor will obtain the bond and pay the premium, but in the event of a loss YOU will receive the benefits of the bond, not the contractor.

“While insurance companies factor in losses in their business model, make loss payments and move on, surety companies, on the other hand, underwrite to a no-loss scenario and will be sure to go after the contractor in the event  the surety has to respond under its bond. Defaulting on a contract doesn’t happen very often, but when it does it can be catastrophic. If it gets to a point when the contractor defaults on their contract forcing a response from the surety, the contractor is likely in a dire situation financially and operationally. This is a worst-case scenario for contractors and they will do everything in their power to ensure the project is successful and to keep it from happening.

“Though many customers do not request bonds in common practice today, we recommend they consider it. Even if you have an established relationship with a builder, it is difficult for you as an outsider to be certain they can complete all the jobs to which they’ve committed. When you require them to obtain a bond we do the legwork and look at ALL of their records, including their past history, financial statements, current and projected contracts, tax records, credit reports, etc. to ensure they are in a financially sound position to complete your job, in addition to assessing their operational ability to physically manage your project.

“This was a quick recap of a complex process that has variations from state-to-state. If I could tell readers one thing it would be to explore and consider bonding on your next project. Without a bond you are putting a lot of trust in the contractor and this is the best way to ensure you investment leads to a lien free project completed according to the terms and specifications of your contract.

Daniel Oaks is Surety Specialist with Nielson, Wojtowicz, Neu & Associates.

With eight locations throughout the southeast, Nielson, Hoover & Company is a nationwide leader in Surety, Construction and Commercial Bonds and is the largest provider in the Southeast.

Daniel earned his undergraduate degree at Troy University in Insurance and Risk Management. After working throughout the nation as a surety underwriter, he, his wife and family settled back in Florida.

2 thoughts on “When hiring a contractor, consider protection”

  1. I would consider getting insurance for them and I would also make sure that the general contractor was insured. I think that is a crucial part to consider with a contractor. I think you can find out more information on them by going to their website.

  2. I like your suggestion of getting a bond if you don’t know the contractor very well. In the past when I’ve gone to a new contractor I’ve asked for a bond and if they denied I knew I should find a new one. Most contractors are reliable and accountable for their work but it never hurts to make sure.

Leave a Reply

Your email address will not be published. Required fields are marked *