This paper explains certain risk management issues that must be addressed by underwriters of construction performance/payment bonds and their bond clients in the current economic down-cycle and how major project stakeholders are affected in those situations. The main focus is on situations in which financially marginal (but otherwise good performing) contractors and subcontractors may be required to meet escrow requirements and have their payments made under expert third-party disbursement control in order to qualify for bonding. This paper provides the whats, hows, and whys of using escrow accounts and controlled funds disbursement for the benefit of project stakeholders. In addition to risk assessment, it addresses some implications for cost estimating and project controls as this process continues to gain prominence due to the protracted economic downcycle. Illustrations used in this paper are based on actual experiences of a national escrow and funds control firm.
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