Can a construction contractor who is also an owner in the project get a bond?

Sheila asked this on December 13, 2012 in Contract Bonds answered this on December 13, 2012

Thanks for your question, Sheila! Good hearing from you.

Unfortunately, the short-winded answer is no. I assume you have already submitted this request to another surety and received the same answer, and I'll try to explain why so you don’t feel as though you need to continue seeking an option.

A surety bond is a three party instrument:

1. Obligee – owner of the project

2. Principal – contractor for the project

3. Surety – Us

In the event of a claim, meaning the contractor failed to satisfy their contractual agreement, the surety would step in and be sure that the project is completed for the obligee. If an individual is both the principal and the obligee this opens the door for a whole slew of issues in the event there ever was a claim. The most concerning issue would be that of a fraudulent claim.

Surety is a small world and the rules of surety go back hundreds of years. It is not like your car insurance where you have thousands of options and they all have different underwriting criteria. You have maybe 20 options and they all pretty much adhere to the same underwriting that has been tried and tested for hundreds of years. In short there is not a surety that I know of In the world that would consider a request when the principal is also the obligee; even if he has a minority stake.

I hope this helps! Feel free to give us a call at 1-800-308-4358, or visit our FAQS page if you have any further questions.