📋 The False Security of Policies
It is common practice to require policies that guarantee contract compliance. However, a policy alone may be more than insufficient to repair the damage caused by a breach.
⚠️ The 10% Problem
There is no rule requiring insurance to cover 100% of a contract. The usual practice is to insure only 10%. In a breached contract of $150 million, it can never be completed with a $15 million guarantee.
A comprehensive framework must include:
- Design of excellent specifications and contracts
- In-depth review of guarantees
- Assessment of the bidder's conditions
- Analysis of the actual execution capacity
- Alternative tools: trusts, cash guarantees
- The policy as a complement, not as the sole shield
Litigation is only good for lawyers: it will take at least 6 to 8 years, during which time the contracting party will not have the solvency or the work or service it contracted for.