WEST Builders has succesfully maintained the Zurich Subguard program from its first year of inception. This program has maintained an opportunity for our clients to reduce risk on both commercial and residential (for rent and for sale) projects. To see more about this project bonding program, please see a description of the program provided below.
Subcontractor Default Protection (Subguard) is a first party insurance policy that provides catastrophic coverage for the Project Owner, Lender, and WEST Builders for the direct/indirect cost of subcontractor defaults.The Subguard Program was first marketed in 1995 throughout the United States to most of the top 500 Builders.After careful review, Gallagher Construction Services office began marketing this program in 1998. Gallagher manage this program for eighteen Builders through the nation. Below is a partial list of several Builders who have purchased Subguard. Every Builder has maintained their program, and none have cancelled their Subguard program with Gallagher Construction Services. This covarage continues beyond project completion for up to 10 years.
The following Builders use the SDP Program:
* Written by Gallagher Construction Services
Subguard is more cost effective than subcontractor bonds, and provides a wide array of benefits to projects:
Subguard is WEST Builders' coverage for the performance default of any subcontractor. If a subcontractor is unable or unwilling to fulfill their contractual obligations, Subguard coverage is initiated. WEST Builders unilaterally remedies the problem and Subguard pays the costs.
What is covered:
Covarage
The policy has a $20 million annual limit to cover subcontractor default costs.
Cost of completing or supplementing subcontractor's work, including:
The policy excludes the following:
Prequalification
With the Subguard program, WEST Builders pre-qualifies subcontractors and bidders on all projects. To that end, a standard prequalification form, including detailed questions about the subcontractor's operations, will assist WEST Builders in adequately prequalifying each subcontractor.
Based upon WEST Builders'; historical experience with a particular subcontractor, they may also employ other methods of analyzing subcontractors'; stability such as:
This process enables WEST Builders to identify subcontractors who will require special risk management procedures (e.g. joint checking). This will also help to prevent and mitigate Subguard losses.
One of the advantages of the Subguard program is that if WEST Builders defaults a subcontractor, they can immediately begin to resolve the problem. Under the traditional bonding scenario, WEST Builders might be required to wait for the subcontractor';s surety to determine what actions are to be taken. That process alone can take weeks, or often longer - adding costs and delays to a project.
Under Subguard, WEST Builders notifies the agent and insurer of any potential default situations, which may include the following:
Once Gallagher Construction Services (Agent) and Zurich (Insurer) are both notified of the problem, a number of experts from WEST Builders'; Risk Management Department, Gallagher Construction Services, and Zurich';s Loss control departments are available to provide assistance in mitigating the loss.
Flexibility in the Subguard program itself allows WEST Builders to mitigate the default loss in any number of ways. For example, if mitigating the loss means continuing to use the defaulted subcontractor and their forces to complete the work, or hiring the subcontractor';s employees directly, Zurich considers those as acceptable means of resolving the default.
Professional Subguard Assistance
Jim Berriatua and Wellington So of Gallagher Construction Services are available to assist in any questions that may arise regarding the Subguard program.
SUBCONTRACTOR DEFAULT PROTECTION - SUBGUARD®
- Brief Background
- How Subguard Works
- The Subguard Claims Process
- Subguard vs. Bonds
- Commonly Asked Questions
Brief Background
Subcontractor Default Protection (Subguard) is a first party insurance policy that provides catastrophic coverage for the Project Owner, Lender, and WEST Builders for the direct/indirect cost of subcontractor defaults.The Subguard Program was first marketed in 1995 throughout the United States to most of the top 500 Builders.After careful review, Gallagher Construction Services office began marketing this program in 1998. Gallagher manage this program for eighteen Builders through the nation. Below is a partial list of several Builders who have purchased Subguard. Every Builder has maintained their program, and none have cancelled their Subguard program with Gallagher Construction Services. This covarage continues beyond project completion for up to 10 years.
The following Builders use the SDP Program:
| Hoar Construction | Birmingham, AL | Clark Construction | Bethesda, MD |
| *Sundt | Tucson, AZ | *Adolfson & Peterson | Minneapolis, MN |
| *Charles Pankow | Pasadena, CA | Roy Anderson Corp. | Jackson, MS |
| *Snyder-Langston | Irvine, CA | *Yates Construction | Philadelphia, MS |
| *Daniel Silverie III, Inc. | Monterey, CA | *Kajima Construction | New Rochelle, NJ |
| *Cahill | San Francisco, CA | Bovis Lend Lease, Inc. | New York, NY |
| *Nibbi | San Francisco, CA | Structure Tone, Inc. | New York, NY |
| *Rudolph & Sletten | San Francisco, CA | Turner Construction | New York, NY |
| *Swinerton, Inc. | San Francisco, CA | *Manhattan Construction | Tulsa, OK |
| Webcor | San Mateo, CA | Flintco, Inc. | Tulsa, OK |
| *WEST Builders | Pasadena, CA | Fluor | Greenville, SC |
| Skanska | Greenwich, CT | HC Beck | Dallas, TX |
| *Konover construction | Farmington, CT | Centex | Dallas, TX |
| Haskell | Jacksonville, FL | Charter Construction | Dallas, TX |
| Weitz | Des Moines, IA | *Hill & Wilkinson | Dallas, TX |
| *O';Neil Industries, Inc. | Chicago, IL | *Rogers-O';Brien | Dallas, TX |
| *Power Construction | Chicago, IL | Austin Company | Houston, TX |
| Holder Construction | Atlanta, GA | Linbeck | Houston, TX |
| Winter | Atlanta GA | Macomber Builders | Boston, MA |
* Written by Gallagher Construction Services
Subguard is more cost effective than subcontractor bonds, and provides a wide array of benefits to projects:
- Pays for cost to fix corrective work of defaulted subcontractor.
- Catastrophe protection should a subcontractor default during or after construction (pays more than the value of the subcontract, if necessary).
- Prevents project delays due to subcontractor failures.
- Pays for cost to replace defaulted subcontractor.
- Pays for attorney fees, experts, etc., needed to adjust the loss.
- Less expensive than the cost of using subcontractor bonds.
- Pays for overtime or acceleration costs to make up schedule.
- Pays for suppliers who were not paid by defaulted subcontractor.
- Pays for liens, tax responsibilities, union dues, etc., associated with the project due to the defaulted subcontractor.
How Subguard® Works?
Subguard is WEST Builders' coverage for the performance default of any subcontractor. If a subcontractor is unable or unwilling to fulfill their contractual obligations, Subguard coverage is initiated. WEST Builders unilaterally remedies the problem and Subguard pays the costs.
What is covered:
- Subcontracts
- Rental Agreements
- Bodily injury claims
- Purchase Orders (may be added upon request)
Covarage
The policy has a $20 million annual limit to cover subcontractor default costs.
Cost of completing or supplementing subcontractor's work, including:
- Legal costs
- Actual damage
- Liquidated damages
- Loan extension costs
- Payments to remedy liens
- Cost of correcting defective work
- Payment to unpaid suppliers/employees
- Costs for replacement/completion contractor
- Costs incurred in the investigation, adjustment and defense of default claims
- Costs to accelerate the work of other subcontractors to ensure timely project delivery
The policy excludes the following:
- Fraud Bodily Injury
- Acts of War
- Nuclear Events
- Architect or General Contractors' Errors and Omissions
Prequalification
With the Subguard program, WEST Builders pre-qualifies subcontractors and bidders on all projects. To that end, a standard prequalification form, including detailed questions about the subcontractor's operations, will assist WEST Builders in adequately prequalifying each subcontractor.
Based upon WEST Builders'; historical experience with a particular subcontractor, they may also employ other methods of analyzing subcontractors'; stability such as:
- Financial report analysis
- Dun and Bradstreet Reports
- Intra-company information/experience
- Calls to both listed and unlisted suppliers/references
- Other industry references
This process enables WEST Builders to identify subcontractors who will require special risk management procedures (e.g. joint checking). This will also help to prevent and mitigate Subguard losses.
The SDP Claims Process
One of the advantages of the Subguard program is that if WEST Builders defaults a subcontractor, they can immediately begin to resolve the problem. Under the traditional bonding scenario, WEST Builders might be required to wait for the subcontractor';s surety to determine what actions are to be taken. That process alone can take weeks, or often longer - adding costs and delays to a project.
Under Subguard, WEST Builders notifies the agent and insurer of any potential default situations, which may include the following:
- Lack of manpower supplied by the subcontractor.
- Subcontractor falling behind schedule, impacting the critical path.
- Continued issues regarding workmanship, or extensive rework required.
- Several notices of non-payment from subcontractors'; suppliers or employees.
Once Gallagher Construction Services (Agent) and Zurich (Insurer) are both notified of the problem, a number of experts from WEST Builders'; Risk Management Department, Gallagher Construction Services, and Zurich';s Loss control departments are available to provide assistance in mitigating the loss.
Flexibility in the Subguard program itself allows WEST Builders to mitigate the default loss in any number of ways. For example, if mitigating the loss means continuing to use the defaulted subcontractor and their forces to complete the work, or hiring the subcontractor';s employees directly, Zurich considers those as acceptable means of resolving the default.
Professional Subguard Assistance
Jim Berriatua and Wellington So of Gallagher Construction Services are available to assist in any questions that may arise regarding the Subguard program.
Subguard vs.General Contractor Bond
| Bonds | Subguard | |
| Duration of Coverage | 1 year after Project Completion | 10 years after Project Completion |
| Warranty Coverage | 1 year only | 10 years |
| Number of Policies? | 1 | 1 |
| Claims Response Time | Regulated by Statute | Immediate |
| Claims Response Personnel | Surety Attorneys | Zurich Engineers |
| Prevention of Delay I Opening | Not Required by Statute | Allows OverTime and Acceleration to finish on time |
| Loan Payment Delay Coverage | Covered | |
| Coverage Stays with project despite sales | 1 year | 10 years |
Commonly Asked Questions
- What Is Subguard?
- What Does It Cost?
- What Sub Default Costs Are Covered?
- Those listed below, less the balance of the subcontract price.
- Pays for cost to Replace Defaulted Subcontractor
- Prevents Project Delays due to Subcontractor failures
- Pays for overtime or acceleration costs to make up schedule
- Pays for attorney fees, experts, etc., needed to adjust the loss
- Pays for cost to fix corrective work of Defaulted Subcontractor
- Pays for Suppliers who were not paid by Defaulted Subcontractor
- Pays for liens, tax responsibilities, union dues, etc., associated with the project due to the Default Subcontractor
- Catastrophe protection should a Subcontractor default during or after construction (pays more than the value of the Subcontract, if necessary)
- What Triggers A Claim?
- How Are Claims Paid?
- What is Excluded from the Policy?
- Bodily Injury Claims
- Nuclear or war-related losses
- Loss arising from dishonest or fraudulent acts by WEST Builders
- Any losses arising from failure to render professional services by WEST Builders
- How Must WEST builders Qualify Subcontractors? WEST Builders must continue to adhere to their normal subcontractor pre-qualification procedures.
- Can Unbondable Subcontractors be Included? Yes, subject to approval by WEST Builders.
- When Does Coverage Begin? Coverage Applies when subcontracts are signed.
- Is Notice to Insurer Required for New Subcontracts Change, Orders, elays or Unbondable Subs? No, these items do not require notification to Zurich.
- Can WEST Builders Select any Subcontractor They Deem Qualified? Yes, WEST Builders has the ability to select any Subcontractor they deem appropriate for the Subguard program.
- Is Policy Cancelable? Zurich may cancel for:
- Non-payment of premium
- Repeated violations of qualification procedure
- Significant change in corporate composition of WEST Builders
- In the Case of the Default of a Design Subcontractor: If the Designer is responsible for a Design Claim aznd has insufficient Professional Liability Insurance, will Subguard respond?
- Can WEST Builders Default a Subcontractor, and yet still use that Subcontractor to complete the work in order to mitigate damage? Yes, if in WEST Builders' best judgment this is the most efficient way to mitigate damages.
A first party insurance policy that provides coverage to the Project Owner, Lender and WEST Builders for the direct and indirect costs of subcontractor defaults.
1.33% of subcontract amounts, less than the cost of bonding subcontractors and bonding WEST Builders.
Notice by WEST Builders to Gallagher Construction Services that a subcontractor is in default of performance or is insolvent.
Zurich will reimburse WEST Builders for covered loss payments.
Regardless of cancellation, coverage remains in place for all subcontracts issued after the policy inception date and prior to the cancellation date.
Yes, in this example Subguard would respond to amounts in excess of amounts recoverable from the Designer's Professional Liability Insurance.