Why Subcontractor Performance Bond Claims Are Increasingly Harder to Resolve
This article discusses the trends making subcontractor performance bond claims more difficult to resolve. Driven by aggressive risk transfer, vague specifications, deteriorating project coordination, and increasing project complexity, the landscape for sureties issuing subcontract performance bonds is increasingly difficult to navigate. Determining the who, where, why and how of performance claims requires awareness of these trends and diligence.
On the Rise: Subcontractor Liability without Control
Over the past two decades, general contractors (GCs) have transitioned from performing work to managing it. Once responsible for executing large scopes of construction, today’s GCs operate as schedulers, scope packagers and risk managers. This shift is not just operational — it’s contractual. Fewer than 30% of commercial GCs self-perform work, and their contracts reflect that reality: broad flow-down clauses, pass-through indemnities, and vague scope language now push risk downward to subcontractors. As experienced project leaders retire and new delivery models dominate, this shift is accelerating. The decline of traditional design-bid-build oversight and the rise of leaner project teams mean that more responsibility is offloaded via contracts instead of resolved through coordination.
The trend creates growing problems for sureties who issue subcontract performance bonds, as subcontractors inherit complex project risks without the authority or visibility to mitigate them. At the same time, their sureties are being drawn into performance claims rooted in upstream coordination failures—well outside the bonded party’s scope of control.
Where the Risk Lands
On large-scale projects, subcontractor tiering amplifies complexity. For example, mechanical contractors may retain sub-subcontractors to provide specialty systems or proprietary equipment. These downstream specialists often execute work exactly as specified—only to face criticism post-installation that the result wasn’t what the owner or design intended.
This scenario often stems from the tension between ‘prescriptive’ and ‘performance-based’ specifications. Prescriptive specifications outline how something must be built down to the product, installation specifics and operation. Performance specifications define what the system must achieve e.g., output, efficiency, performance.
In many large-scale projects, subcontractors are held to performance criteria without influence over the coordination or integration required to meet prescriptive specifications. If the system meets the technical spec but fails to satisfy the owner’s expectations or designer intent, blame is assigned downward – even when the issue lies with an upstream design or coordination failure. When design expectations exceed design criteria, liability tends to settle at the lowest contractual level.
In claim scenarios, the result is predictably messy. Coordination failures or scheduling breakdowns appear as trade-level defaults. General contractors, meanwhile, often adopt the role of intermediary in owner disputes while distancing themselves from liability through contract terms. Downstream trades work under narrow scopes while absorbing exposure tied to project-wide outcomes and subjective preferences.
It’s important to acknowledge that GCs are not acting in bad faith. Their risk management practices reflect the realities of at-risk delivery models, inflation pressures, stakeholder management issues, and lean staffing models. These forces combine to incentivize contractual distancing from risk and they create exposure gaps that often are forced onto subcontractors.
Implications for Surety Claims Professionals
- Subcontractor sureties face pressure to accept liability for gray-area performance issues
- Sureties must attempt to untangle complex responsibility matrices in intensively short timelines
- Both general contractors and subcontractors are drawn into technical disputes rooted in poor integration, design ambiguity or unrealistic scheduling
Incomplete records, poorly reviewed schedules and site progress, or sequencing changes that complicated original work compound the pressure and further complicate resolution strategies. As a result, claim outcomes are often dictated more by stakeholder positioning than by facts.
What to Do: Practical Measures for Subcontractor Bond Claims
- Read all the contracts. Don’t stop at the subcontract. Understand the upstream obligations being passed down and the original scope documentation and requirements of the drawings and specifications. Flow-down clauses often bury critical exposures.
- Confirm delegated design scope. Determine whether the subcontractor had actual design control or was executing prescriptive specs disguised as performance expectations.
- Trace the breakdown. Use schedules, meeting minutes and RFIs to identify where coordination or decision-making failed. Look for evidence that delays or quality issues stem from external interference.
- Test the constructability. Assess whether it was possible for the work to be completed as scoped, given the actual site conditions and dependencies. Clarify if execution was hindered by context.
- Map the interferences. Identify where overlapping trades, poor sequencing or absent coordination introduced risk that the subcontractor couldn’t manage.
Look Beyond the Obvious to Examine the Entire Contractual Structure of the Project
Today, sureties cannot reasonably assess subcontractor claims in isolation as the structure of modern construction contracts intentionally shifts risk while concealing causation at all levels above. What looks like non-performance is often the symptom of coordination failures or design gaps.
The task for claims professionals is to read between contracts:
- examine the project structure
- trace liability pathways and
- differentiate performance from prescriptive results.
By doing so, sureties can ensure that exposure is correctly applied and that equitable outcomes in an environment built to obscure them are properly allocated.
At VERTEX, we routinely help sureties trace root causes and manage subcontractor exposures that result from misaligned project structures. For more information or assistance with surety claims, contact Connor Chow AIA, MRAIC, P.GSC, P.TECH, PMP, LEED AP BD+C, NCARB, Director & Registered Architect, or submit an inquiry, or call 888.298.5162.
References
American Institute of Architects (AIA). (2017). Delegated Design: Professional responsibilities of the architect and engineer. The American Institute of Architects. https://content.aia.org/sites/default/files/2018-04/DelegatedDesign_Guide_2017.pdf
Associated General Contractors of America (AGC). (2021). The Construction Industry’s Workforce Shortage: Looking back, looking forward. https://www.agc.org/sites/default/files/files/AGC_Workforce_Shortage_Study_2021.pdf
Construction Specifications Institute (CSI). (2020). MasterFormat® and the role of performance vs. prescriptive specifications. CSI Resource Center. https://www.csiresources.org
Dodge Data & Analytics. (2020). Managing Risk in the Construction Industry: A report on subcontractor default and project complexity. https://www.construction.com/products/analytics
National Association of Surety Bond Producers (NASBP). (2021). Surety’s perspective on subcontractor default insurance (SDI). https://www.nasbp.org
Procore Technologies. (n.d.). Self-perform construction: Pros, cons, and considerations. Procore. https://www.procore.com/library/self-perform-construction
Procore Technologies. (n.d.). Construction Manager at Risk (CMAR): Pros and cons. Procore. https://www.procore.com/library/cmar-construction
Zurich North America. (2019). Subcontractor Default Insurance: Construction risk trends and lessons learned. https://www.zurichna.com/en/knowledge/articles/2019/10/sdi-subcontractor-default-insurance
