When it comes to selecting a general contractor for a construction project, owners’ typical considerations are clear: the contractor’s experience, its vision for the job, the quality of its work, and — of course — price. Likewise, when a subcontractor is deciding whether to bid for a scope of work on a project, it primarily thinks about the general contractor’s skill in coordinating trades, its ability to be the sub’s advocate with the architect or owner, and — of course — price.
These are all critically important considerations.
But when something goes wrong on a project, the thoughts of owners and subcontractors invariably turn to something they perhaps weren’t considering carefully when they entered into the contract: the general contractor’s solvency.
For owners, a solvent general contractor can often serve as the first — and a powerful — line of defense if one or more subcontractors claim that they are entitled to additional compensation. The general contractor will often have a contractual obligation to post a bond to release a subcontractor’s claim of lien on the owner’s property — protecting the owner’s property interests and often its source of financing. And many states, including Oregon, have legal rules that require subcontractors to first seek to recover from the general contractor and show that the owner has not satisfied its obligations to the general contractor before the subcontractor can seek to bring a claim for unjust enrichment directly against the owner.
In these circumstances, the general contractor’s solvency — whether through its ability to post a bond to discharge a lien, to obtain a payment bond sufficient to compensate its subs, or its own financial ability to pay a judgment — can provide powerful protection to the owner against liability to subcontractors.
Likewise for subcontractors, because the general contractor will often serve as the first — and sometimes only — avenue for recovery if the subcontractor is entitled to additional compensation, making sure that the general contractor with which they’re partnering on a project has adequate financial resources can be the difference between a smooth resolution and a protracted and risky legal battle. If something goes wrong, a subcontractor cannot always count on being able to recover from the owner — particularly if it hasn’t strictly followed statutory prerequisites for the lien procedure.
There are two key steps that parties can take at the beginning of a project to make sure they have these protections in the unfortunate event of a dispute.
First, ensure contracts contain sufficiently robust bond terms — and requirements that the general contractor provide proof of obtaining adequate bonds — to guarantee the general contractor’s performance on the job and its payment of subcontractors. If something happens to the general contractor, payment and performance bonds can be a safety net both for the owner and the subs. Payment bonds provide additional protection to ensure that the general contractor pays subcontractors and vendors on the project while performance bonds can provide an additional pool of resources to call upon if the general contractor is unable to finish the project. Although sureties have defenses that they can invoke to try to defend against paying out on the bonds, both performance and payment bonds can provide an added layer of protection from financial risk on projects.
And second, pay close attention to your contract’s insurance terms. Insurance exhibits aren’t the juiciest parts of construction contracts and they’re all too often recycled from one project to the next. There are many different types of policies and coverages that can protect the parties when things go awry, so it is well worth spending the time with your insurance broker to make sure you select the options that are best suited for your project. Making sure the contract’s insurance terms are properly tailored to the project can be the difference between having a viable pool of recovery if something goes wrong and being left out in the cold.
Part of a general contractor’s role on a project, then, is often to sit at the fulcrum of liability when things get difficult. A strong general contractor — of which there are many — can be the key to making sure everybody’s interests are protected, and all parties can work through a dispute to move to the next project.
Originally published to the Oregon Daily Journal of Commerce on August 14, 2025.
