This is America. Everyone is entitled to their opinion. But on the subject of Double Liaison (Guarantee Contract) not all of us will agree.
So here are the facts. You will decide if this is a great idea or just a waste.
What is the double bond?
Also called “back linking”, an example would be where both a subcontract and a main construction contract (directly with the project owner) are linked. The prime contractor is the General Contractor (GC).
The GC gives some of the work to commercial contractors such as plumbing, electrical, and HVAC. These companies may be required to provide a subcontract bond to the GC guaranteeing their work. In turn, the GC provides an all-encompassing link. In other words, it also covers plumbing, electrical, and HVAC. That’s the “double” part. Sounds pretty silly so far, right? Why would someone do that?
It turns out that this happens often. Depending on your point of view, it may seem useful/essential, or just a waste of money. We evaluate it and you decide.
Why love it:
With the double bond in place, sub material suppliers can offer better prices, as they will now be covered by a payment bond.
Substitutes that have been approved by a warranty may perform better, which benefits the owner.
Third-tier suppliers and subcontractors cannot be protected by a payment bond unless there is a double bond. The GC bond cannot go down to the third level (sub of a sub.)
Many GCs have a policy to automatically bind subscribers above a certain dollar value. This is to ensure that delays and unpaid invoices are avoided.
Subcontractors with a guarantee may have an advantage when looking for a new job. These are important credentials that prove they have passed the scrutiny of underwriters and are backed by a professional guarantor.
The collateral may find it easier to support the GC bond if the primary underwriters are bonded.
Obtaining the GC bond may be a mandatory requirement of the contract. However, the sub-bonds, although not required under the main contract, directly benefit the GC. The GC/Prime Contractor is the beneficiary and potential claimant of such bonds.
The biggest reason: The GC guarantee may insist that the main subs be secured as a condition of backing the GC. This may be the key to acquiring the contract.
Why hate it:
The owner does not need secondary bonds because the GC bond already covers all the work.
The owner may also be required to bear related costs if subbonds were anticipated. If not, the charges may come out of the GC utilities.
In a competitive situation, the related costs could cause GC to lose the project.
Secondary bonds may help GC with its collateral, but they do not reduce the cost or dollar value of the GC bond.
bonus puzzle
Love it or hate it, the double bind is sometimes done voluntarily, or may be stipulated by GC’s guarantee. It cannot be denied that the concept is important, so important that in some cases both the GC bond and the secondary bonds are issued by the same guarantee. Why would they do that?!
