Who Are The Parties In A Construction Surety Claim?

When a construction surety lawyer helps a client file a claim, it's important to clearly identify the parties to the case. If you're thinking about hiring a construction surety attorney, these three parties represent most of the people who'll be involved.

Principal

At the core of surety law is the notion that a contractor, or the principal, ought to provide some financial assurance that their work will be satisfactory. When a contractor takes on a project, they and the contracting party may agree to acquire a bond. Usually, the contractor pays for the bond at a rate that's a small percentage of the overall value. For example, a 1% bond of $100 would pay for $10,000 worth of coverage.

Notably, this is not the same thing as insurance. The bond covers things like failing to finish a job on time or perform work to specifications. Insurance covers things like negligence and accidents.

Obligee

Generally, whoever is authorizing a project is the obligee. This could be a developer, property owner, or construction company. If there is a problem with the work, the principal is obligated to satisfy the obligee. They can satisfy the requirements of the bond either by performing the work or letting the surety pay out the claim. It's normal for an obligee to hire a construction surety lawyer to press a claim, especially if there are sticking points in satisfying the contract.

Surety

The surety is the party that issues the bond. Despite the fact that a surety isn't insurance, the surety can be an insurance company. The surety is a third-party with no interest in the project, and their job is to address concerns if something goes wrong with the work.

Frequently, a surety will act as a middle man in resolving differences. They will contact the principal to inform them that the obligee is not satisfied with the work. Likewise, the surety company will appoint an adjuster who will investigate the condition of the work and determine whether the claim is valid. If the claim is valid, the surety will give the principal a chance to make a good-faith effort to make things right. If that proves impossible, the surety will pay out the claim to the obligee for a value up to the maximum on the bond.

Notably, the surety will recover whatever amount it paid the obligee from the principal. This is a major difference between bonds and insurance policies because principals are on the hook for the cost of paying claims.