What is Subguard?

  • Subguard is a comprehensive insurance policy that protects the owner and general contractor against a defaulting subcontractor. It protects a project from delays and additional costs associated with a defaulted subcontractor or supplier.
  • It was introduced in the mid 90s by Zurich Insurance Company.

 

Industry Trends:

  • It is becoming the norm for General Contractor’s to use Subguard in lieu of subcontractor performance (surety) bonds. Today, we are seeing Subguard used as the main form of protection on most projects, rather than performance bonds.
  • Government programs/grants are beginning to accept Subguard in lieu of performance bonds like RACP program funding.
  • Subguard is designed as a two‐party agreement between the subcontractor and the general contractor. If a subcontractor defaults, Subguard provides the general contractor the flexibility of enforcement at the time of default. As opposed to the generally slow response and action of surety bonds (which then can cause schedule delays, and budget issues), Subguards allow for more flexibility of enforcement, which can help keep a project on schedule.
  • Subguard gained further popularity as a result of the increase perceived risk and decreased General Contractor fees that occurred and remained from the recession. Fees before 2008 were normally in the 3‐5% range; now they are often seen under 2%.

Advantages:

  • The General Contractor manages the claim process rather than the bond company.
  • Subguard allows for the General Contractor to default a subcontract, while not terminating their contract, which allows them to continue work on the project therefore not causing a disruption in schedule.
  • Subguard has a policy duration of typically 3 – 5 years (though it can be extended to 10) which covers default beyond the completion of the project. Performance Bond usually expires after the 1 year warranty period.
  • Coverage extends to the occurrence and aggregate limits of the contractor’s policy (which is typically greater than what would be provided on a performance bond).
Watchdog Real Estate Project Management
Watchdog Real Estate Project Management is a real-estate consulting firm that provides owner’s representation and project management services. More about Watchdog Real Estate Project Management as well as additional blog posts can be found at www.watchdogpm.com
Free E-Book
Lorem ipsum dolor sit amet, consectetur adipisicing elit

Ask a Project Manager

Questions? We're here for you.