Masonry Magazine June 1967 Page. 7
Insurance For Contractors
A good insurance or bond counselor helps to enhance the close relationship which exists between the contractor and his insurance/bond counselor. Obviously it is a relationship dependent upon confidence; in many respects it parallels a good banking connection.
Keeping a personal vow made when contemplating the outline of these pages, we shall not begin with the usual statement about the basic difference between insurance and bonding on the grounds that it is too basic. It does seem necessary to define some terms and briefly illustrate what a few particular contract bonds do, however:
Bid Bonds - Given by the contractor to the owner, guaranteeing that, if awarded the contract, he will accept it and furnish final Performance or Payment Bonds as required.
Performance Bonds - Given by the contractor to the owner, guaranteeing that he will complete the contract as specified.
Labor and Material Payment Bonds - Given by the contractor to the owner, guaranteeing that he will pay all labor and material bills arising out of the contract.
Maintenance Bonds - Given by the contractor to the owner, guaranteeing to rectify defects in workmanship or materials for a specified time following completion. A one year maintenance bond is normally included in the Performance bond without additional charge.
Completion Bonds - Given by the contractor to the owner and lending institution, guaranteeing that the work will be completed and that funds will be provided for that purpose.
Supply Bonds - Given by manufacturer or supply distributor to owner, guaranteeing that the materials contracted for will be delivered as specified in the contract.
Subcontractor Bonds Given by subcontractor to contractor, guaranteeing performance of his contract and payment of all labor and material bills.
Such bonds are required by statute for federal, state and local government work and, of course, for a great deal of private construction. They are the best form of guarantee that construction will be finished as required and that all bills will be paid. Amounts of bond required may vary from 10% to 100% of the total price of the contract, but are normally 100%.
Any undue delay or outright failure to secure a required contract bond could cost the contractor the job, so performance of the bond agent is all-important to success of the contractor/counselor partnership. You can help by promptly supplying all financial information requested and, in general, keeping him posted about the status of your present and future work program. Those who are relatively new to the contracting business should strive to establish a strong working relationship with such an insurance/bond source.
Now, some definitions of other bonds you will encounter:
License or Permit Bonds Given by the contractor/licensee to a public body, guaranteeing compliance with statutes or ordinances, sometimes holding the public body harmless.
Sub-Division Bonds - Given by the developer to a public body, guaranteeing construction of all necessary improvements and utilities; similar to a completion bond.
Union Wage Bonds - Given by the contractor to a union, guaranteeing that the contractor will pay union scale wages to employees and remit to the union any welfare funds withheld.
Self-Insurers' Workmen's Compensation Bonds Given by a self-insured employer to the state, guaranteeing payment of statutory benefits to injured employees.
Others falling into the broad categories of Court Bonds and Fidelity Bonds will not be dwelled upon here; need for the former will be made known to you when and if the time comes, while the best method for protection against employee dishonesty will be brought to your attention by the professional handling your combined insurance/surety account.
(Continued next month)
THE AUTHOR
Walter T. Derk is Assistant Vice President of the Fred S. James & Company, national brokerage firm with headquarters in Chicago. He has over 19 years of experience in the casualty insurance field and is one of the leading national speakers on this subject. Mr. Derk has lectured architectural classes at the University of Illinois on the subject of contract specifications and is the author of many comprehensive articles on insurance.