29 Jan Research to Correct the Problems of the Regulators of Client’s Risk
By Black Carroll, Matthew Lee, Dean Kashiwagi, Kenneth Sullivan, Marie Sullivan
April 2005
Abstract
The bonding and insurance surety industry has had difficulty regulating risk in the construction industry. They have had a constant increase in payouts and premiums due to increased construction contractor nonperformance in the price-based construction environment.
This paper reviews the mechanics of the construction contractor funding model, the construction surety model, and the construction industry structure. The risk of the surety industry is attributed to volume and price based practices. It identifies that the surety industry is caught in the same predicament as the contractors: They are trying to regulate. The paper proposes changes in the surety model, and a research proposal to test the hypothesis that sureties will be successful if they minimize the risk of nonperformance.