This is America. Everyone is entitled to their opinion. But on the issue of Double Binding (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 binding”, an example would be where both a subcontract and a main construction contract (directly with the project owner) are tied. The main 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 a link that covers everything. 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, the sub’s material suppliers can offer better prices, since they will now be covered by a payment bond.
Substitutes that have been approved by a warranty may work 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’s bond cannot go down to the third level (sub of a sub.)
Many GCs have a policy to automatically link 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 new work. These are important credentials that prove they have passed the scrutiny of underwriters and are backed by a professional guarantor.
Collateral may find it easier to back the GC surety if the primary underwriters are surety.
Obtaining the GC bond may be a mandatory requirement of the contract. However, the sub-bonuses, while not required under the main contract, directly benefit the GC. The GC/Prime Contractor is the beneficiary and potential claimant of such bonds.
The most important reason: the GC guarantee may insist that main subs be bonded as a condition of supporting the GC. This may be the key to acquiring the contract.
Why hate him:
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 advanced. If not, the charges may come out of 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 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 it can be stipulated by the GC 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?!