Contractor Default Gap Calculator

GC default is rare but catastrophic when it happens — bond recovery rarely covers everything.

Contract balance remaining

Replacement GC premium %

Surety bond limit

Legal + admin cost

Delay carry cost

Gap exposure

$2,890,000

Cost to complete

$22,890,000

Bond recovery

$20,000,000

How the math works

Cost to complete = remaining × (1 + premium) + legal + delay carry. Bond caps at limit.

$18M × 1.18 + $450k + $1.2M = $22.89M needed. $20M bond limit = $2.89M gap.

How to Use

Enter original contract balance remaining.
Enter replacement GC premium %.
Enter surety bond limit.
Enter legal/admin cost.
Enter delay carry.
Read gap exposure.

Frequently Asked Questions

How often do GCs default?

Publicly-bonded projects: 0.5-1.5% of contracts experience a GC default. Privately-bonded: 1-3%. Unbonded contracts: 5-10%+. Default typically from: bankruptcy, cashflow collapse, key-person death/illness, disputes escalating, or walkaway in a sub-default cascade. Defaults cluster during recession; Q4 2008-Q2 2009 saw 4x normal default rates across construction. 2020-2022 saw another spike from COVID, supply chain, and labor shortages.

What does a surety bond cover?

Performance bond: insures GC completes the contracted work. Covers cost to complete minus unpaid contract balance, plus liquidated damages up to bond limit. Payment bond: insures subs and suppliers are paid. These are separate bonds, typically each at 100% of contract value. Surety takes over completion (hiring takeover contractor) or pays owner to complete with replacement. Process takes 4-9 months typically — owner bears interim carry cost.

Why is there still a gap?

Several reasons: (1) Cost to complete is typically 110-130% of remaining contract value — new GC charges risk premium. (2) Delay carry cost during 4-9 month surety process (interest on construction loan, operating pre-revenue, insurance, lost leasing). (3) Legal fees for dispute resolution ($200-700k common). (4) Bond premium may be insufficient for inflated cost-to-complete in high-inflation environments. Typical gap: 15-35% of remaining contract value not recoverable from bond.

How do you mitigate gap risk?

Bond over-cover (110-120% of contract value vs standard 100%). Construction manager at-risk (CMAR) contract with separate bond. Financial review of GC monthly (debt/AR/AP/cash). Joint-check payment to subs to prevent sub-default cascade. Retainage schedule that backloads payment to GC. Letter of credit backing from GC parent. Sub-default insurance (SDI) to catch sub-cascade early. Institutional developers layer 2-3 of these on all >$20M projects.