Subcontractor Default Insurance or Payment Bond: They Are Not The Same
An article featured in the spring edition of Surety Bond Quarterly discusses the features and purposes of subcontractor surety bonds and subcontractor default insurance. Today we want to take a quick look at what makes SDI different than a surety bond.
A payment bond is issued as assurance of payment to certain parties should the principal of the bond breach their construction contract. Subcontractor payment & performance bonds are much like general contractor bonds, except for the statutory requirements that might apply.
According to the author of Managing Subcontractor Risks of Non-Performance and Financial Failure: A Flash Guide to Subcontract Bonds and Subcontractor Default Insurance, subcontractor default insurance (SDI) is
“… a two-party, catastrophic insurance policy…provides general contractors with insurance coverage for direct and indirect costs of a trade contractor default.”
The author further explains the difference between a bond and SDI: “Unlike subcontract bonds, SDI coverage is traditional insurance that presumes some level of losses; and general contractors that purchase SDI coverage must bear a significant level of self-insurance for such risks through high deductibles and co-payment requirements.”
Surety Bond Quarterly provided a side by side comparison of which a portion appears below.
Another difference between the two? SDI is not a substitute for a payment bond which may be required by various states’ statutes.
“…SDI…never is a replacement for statutory federal, state or local bond requirements, whether such statutory requirements dictate bonds at the prime or subcontract levels.”
NCS Extra Credit
In this NCS Extra Creditinstallment, Shannon Dooley (NCS Collection Liaison) and Jerry Bailey (Executive Sales and Education Services Manager) discuss contingent collection vs. writing off bad debt.
NCS Tip of the Month
Check it out! NCS UCC Services Group – Tip #68: Does Your Customer Own Their Building?
Seriously Misleading, Standard Search Logic, Noise Words, Name Changes & Avoidance: The Importance of Correctly Identifying the Debtor in Compliance with Article 9 of the Uniform Commercial Code
The proper spelling of a debtor’s name on a UCC Financing Statement is a fervently litigated issue. The UCC Article 9 registry system is designed to permit creditors to make a security agreement public by filing a UCC Financing Statement. UCCs are indexed by the name of the debtor, in part to facilitate a streamlined search and to identify pre-existing security interests.
Download this whitepaper to learn more about the impacts of seriously misleading standard search logic, noise words, name changes & avoidance on your UCC filing!
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