Contract Status Report

Most end-users of performance bonds have become familiar with Contract Status Reports. These are normall one-page forms which are sent out by surety bond companies to owners (or their representatives to check on the progress of bonded construction contracts.

Once a performance bond is issued, it represents the surety's professional prequalification of the contractor's technical and financial ability to complete the contract. Seen in this light, the performance bond is simply a stamp of approval under which the surety joins with the contractor to guarantee to the owner that the contractor will comply with the terms of the contract. The progress report is a simple and effective tool which is used to keep the surety informed of the progress of the contract it has bonded.

Typically, the progress report identifies the parties to the contract, describes the project and indicates the original contract price. The progress report form then asks the owner to answer a few simple questions about the current contract price, the value of the work performed by the contractor to date, the projected completion date, whether the work is proceeding satisfactorily and whether there are any unsatisfied claims or liens from subcontractors or suppliers. This information is extremely useful to the surety and can be of significant value to the owner. By being informed of problems early, the surety can often help the owner, the contractor and the subcontractors avoid costly disputes.

Bond premiums are based upon the ultimate value of the bonded contract, not simply on the initial contract amount at award. This often leads to a premium adjustment - up or down - upon completion of the contract. The progress report assists the surety in making this adjustment.

The surety bond community provides a professional prequalification service through contract bonds; a service that cannot be provided by letters of credit and other forms of contract security. Progress reports help bonding companies become more familiar with contractors' abilities to perform certain types and sizes of construction projects which in turn enhances the surety's effectiveness to the owner in prequalifying contractors.

All parties to a construction contract benefit when the job runs smoothly. The greatest benefit of the contract progress report is it's effectiveness as a direct line of communication between the contract bond writer and it's end-user. Yet despite the importance of the contract progress report as a communication vehicle, bonding companies often encounter difficulties in getting construction purchasers and design professionals to return the forms when they are sent out. In the paper blizzard that goes with a major construction project, the last thing anyone needs is one more form to complete, but there may be good reasons to move this one to the top of the pile. Remember that this report is usually the first indication a surety company receives that the job may not be proceeding in a satisfactory manner. The sooner a surety company can learn of difficulties, the sooner it can react to them and reduce costs and delays.

A more sobering consideration is the difficulties an owner can face by not keeping the surety informed. If a construction purchaser or their representative knows of problems on a job and does not report these to the bonding company by responding to requests for information, they may have nullified their protection under the bond by prejudicing the position of the surety. The result is frustration and dissatisfaction not to mention lengthy and costly litigation.

Remember that these forms are for the benefit of the owners as well as the bonding company. The few minutes to takes to complete can save a lot of time and headaches afterward.