The cost of a subcontractor's default: the five parts and the code that collects them
The siding subcontractor has stopped attending a rental-building job. A replacement quote arrives, and the project manager calls its full value the loss. The unpaid original balance, unfinished deficiencies and effects on other trades have not been reconciled.
Track five areas of exposure: completion beyond the reconciled original balance, extra time-related site cost, other trades' effects, correction of defective work and your team's replacement effort. Keep those areas mutually exclusive and show recorded cost separately from estimates. Have the authorized advisers manage the default, notice and replacement decisions first. The Surety Association's guidance describes investigation and supporting records; a cost ledger does not establish that a bond will pay every entry.
Build the exposure once, with its supporting records
- Confirm the commercial status. Refer missed performance to the project manager and advisers responsible for the subcontract and bond. Record the factual work status without independently declaring default or instructing a replacement through this cost exercise. Preserve notices and the authorized response.
- Reconcile the original balance. Check agreed changes, payments, completed work and disputed amounts with accounts and the commercial lead. Define the remaining value used in the forecast comparison. Money not yet paid is not automatically free to spend without considering the original obligations.
- Price completion on the same scope. Obtain a documented remaining-work assessment and the authorized completion price. Identify its inclusions, exclusions and timing. Compare it with the reconciled allowance; carry added scope or corrections separately only if they are excluded from that price.
- Assess the wider effects. Review added site duration, other trades' remobilization or disruption and staff effort with their owners. Retain schedules, time records and invoices. Distinguish an actual additional charge from a reallocation of a salary already included in the forecast.
- Remove overlap across the five areas. Check that correction labour is not inside both the replacement quote and the deficiency line. Reconcile site overheads with any extended-period allowance. Keep a single source reference for each charge and explain allocations.
- Update cost and recovery separately. Review the remaining exposure each week while the response is active. Give the authorized commercial or surety reviewer the records it requests. Mark disputed or potential recovery by its real stage rather than subtracting a hoped-for payment from known cost.
Common mistakes
- Reporting the entire replacement price as the incremental loss.
- Including correction work twice because it appears in separate records.
- Treating a bond's face value as a confirmed recovery.
Checklist
The five-part exposure record
- Matching completion scope and reconciled balance.
- Additional site-time cost.
- Other-trade effects with support.
- Corrections excluded from completion price.
- Additional staff effort on a stated basis.
- Overlap removed; recovery stage identified.
Check your understanding
A replacement quote includes correcting installed siding. Should the deficiency line add the same correction price again?
