By Alex Barthet
What happens after you send your Notice of Nonpayment? What steps can you take to increase the likelihood and reduce the time it takes to get paid.
Who is the principal?
The contractor is called the principal in this three-party agreement between the principal, surety and obligee. The principal applies for a bond from a surety which provides assurance to an obligee (such as a supplier that) it will do what it is supposed to.
As part of the underwriting process, when contractors want to become bonded, the surety (an insurance company that is able to write surety bonds in the state) has the contractor (the principal) sign what’s called an indemnity agreement. This is an agreement that says “I the principal agree to pay back the surety for any losses that the surety may suffer.”
This is not like car insurance where all you need to do is to pay your premiums, and they’ll cut you a check if your car gets damaged in a an accident. They’re not asking you to pay them back for that car. Suretyship is very different. If the surety writes a check, they’re going to look to their principal to recover all of the costs and fees associated with the loss. To do that they get what’s called an indemnity agreement and that agreement is typically signed by the contractor that is bonded and many times by the owners of the construction company either individually or with their spouses.
They are on the hook and in many times, personally on the hook. Once the surety is satisfied that they have their underwriting taken care of, they will go ahead and issue bonds to the projects that the contractor asked them to issue bonds on. The surety owes a duty to both the principal (contractor) and the obligee (claimant – subcontractor or supplier). They are in the middle of this relationship where they have to do right by the principal as well as to you the obligee.
What happens once you submit your claim to the surety?
When the surety receives the Notice of Nonpayment, they will prepare two letters. The first letter is a letter to the principal (contractor) asking them about the claim. They will take the information that you submitted as a subcontractor, sub-subcontractor or supplier and send it to the contractor. That letter typically says ‘we have received this claim from this claimant. Please