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Insurance & Bondingaka: SDIaka: subguard

Subcontractor Default Insurance (SDI)

In Plain English

Insurance that a general contractor buys to protect against the risk that a subcontractor fails to complete their work.

Definition

Subcontractor default insurance is a first-party insurance product purchased by a general contractor to cover losses caused by subcontractor default or non-performance, serving as an alternative to requiring performance bonds from each subcontractor. SDI typically requires the GC to prequalify subcontractors and manage the claim directly, which can result in faster project recovery than traditional surety bond claims. The GC shares risk with the insurer through a deductible and co-insurance structure.

Why It Matters in Bidding

SDI shifts default protection from individual surety bonds to a GC-controlled program, which affects how much bond cost an estimator carries in the bid and how default risk is priced. Because the GC absorbs a deductible and co-insurance and controls the claim, SDI can speed remobilization after a sub fails, but it also concentrates prequalification responsibility on the GC's own underwriting.

Example

Rather than requiring performance bonds on a fast-track high-rise, the GC enrolls its prequalified electrical and mechanical subs under its SDI program and carries the deductible as a line item in the project's general conditions.

Related Terms

Performance BondSurety BondPayment Bond

Frequently Asked Questions

A performance bond is third-party surety the sub buys, paying the owner or GC after a vetted claim process. SDI is first-party insurance the GC buys and controls, allowing faster self-directed completion. SDI trades the surety's prequalification for the GC's own, and adds deductible and co-insurance exposure the GC must fund.
The general contractor purchases SDI and carries the premium, typically recovering it through general conditions or markup rather than a separate bond line per sub. The GC also funds the deductible and a co-insurance share on any loss, so estimators should account for this retained risk when comparing SDI to a bonded approach.
No. SDI programs require the GC to prequalify each enrolled sub on financial strength, capacity, and past performance, and insurers audit that process. Subs failing prequalification may be excluded and required to provide traditional bonds instead, which estimators must reflect when assembling the bid's bonding strategy.

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