Construction Subcontractor Default Insurance: A Viable Alternative to Performance Bonds?

Description

SDI can be a viable alternative to surety bonds, depending on the size and scope of the project. SDI policies are purchased by the project manager and obligate the insurer to reimburse costs incurred because of subcontractor default. SDI policies often have lower premium costs than surety bonds and tend to give the prime contractor more flexibility in resolving subcontractor defaults.

The differences between SDI and surety bonds, however, give rise to one of the disadvantages of SDI, namely that the insurer is not obligated to complete a defaulted subcontractor’s work. Furthermore, as the 2013 New York Waterscape Resorts case illustrates, the project owner is not an insured under the policy and has no recourse against the SDI insurer.

Construction counsel must understand the differences between traditional performance bonds and SDI insurance, the pros and cons of SDI insurance, and whether SDI is a viable risk mitigation vehicle for a particular client or project.

Listen as our authoritative panel of practitioners guides you through the pros and cons of subcontractor default insurance, the differences between SDI and surety bonds, and the factors that should be considered in choosing SDI as an alternative to traditional bonding.