Bonding Secrets 155: The Double Bonding Dilemma

This is America. Everyone is entitled to their opinion. But on the issue of double bond (contractual bond) we will not all agree.

So here are the facts. You will decide if it is a great idea or just a waste.

What is the double bond?

Also called “back bonding”, an example would be when both a subcontract and a main construction contract (directly with the project owner) are linked. The prime contractor is the general contractor (GC).

The GC gives some of the work to commercial contractors, such as plumbing, electrical, and HVAC. These companies may be required to post a subcontract bond to the GC to guarantee their work. In turn, the GC provides a link that covers it all. In other words, it also covers plumbing, electricity, and HVAC. That’s the “double” part. Sounds pretty silly so far, right? Why would anyone do that?

It turns out that this happens often. Depending on your point of view, it may seem useful / essential, or just a waste of money. Let’s evaluate it and you decide.

Why love it:

With the double bind in place, the submarine’s material suppliers can offer better prices, as they will now be covered by a payment bond.

Subs that have been approved for a bond may perform better, which benefits the owner.

Third-tier suppliers and subcontractors may not be protected by a payment bond unless there is a dual link. The CG link cannot go down to the third level (sub of a sub.)

Many GCs have a policy to automatically link subscribers above a certain dollar value. This is to ensure that delays and unpaid bills are avoided.

Bonded subcontractors can have an advantage when looking for a new job. These are important credentials that prove they have passed underwriter scrutiny and are backed by a professional guarantor.

Bail may find it easier to back up the GC link if the main subs are joined.

Obtaining the GC bonus may be a mandatory requirement of the contract. However, the sub-bonds, although not required by the main contract, directly benefit the CG. The prime / CG contractor is the beneficiary and potential claimant of such bonds.

The most important reason: the GC warranty may insist that major subs be attached as a condition of supporting the GC. This may be the key to acquiring the contract.

Why hate it:

The owner does not need sub-bonuses because the GC bonus already covers all the work.

The owner may also be forced to bear the related costs if the sub-bonds are anticipated. If not, the charges may come from CG earnings.

In a competitive situation, the related costs could cause the CG to lose the project.

Sub-bonds can help GC with its collateral, but they do not reduce the cost or dollar value of the GC bond.

Puzzle bonus

Love it or hate it, the double bind is sometimes done on a voluntary basis or can be stipulated by the GC guarantee. It cannot be denied that the concept is important, so important that in some cases both the GC bond and the sub bonds are written by the same collateral. Why would they do that ?!

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