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Contract Default Liability

Published: Mar 14, 2023

Having a subcontractor default on their work can be a tough pill to swallow, but contracts do have options to mitigate this risk. The Contract Default Liability program offered by SRA helps businesses reduce the risk and responsibilities associated with using subcontractors. This program allows contractors to create a tax-deferred reserve, which they can use to hire a new contractor if their original subcontractor becomes unreliable or goes out of business.

For example, a home contracting company owner sets aside a portion of every project’s profit in a tax-deferred 831(b) Plan. This plan helps the owner honor the 10-year construction defect warranty in case one of the subcontractors goes out of business and is unable to repair any defects. By having a reserve in place, the owner can protect their business and reputation, as well as ensure that the customers are satisfied with the final result.

The Contract Default Liability program can be useful for contractors in various industries who use subcontractors for their work, including construction, project management, tech, marketing agencies, and more. This program can help these contractors manage their risk and rest easy knowing that they have processes in place to protect their success and keep their customers happy.

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