Surety Bond Companies Unwilling To Write Bond For Computer Software

Software companies are often looking for a surety bond to guarantee the programming code of their software. Some bonding companies are willing to do this for larger software developers. However, most bonding companies are not willing to venture into the world of software guarantees.

Recently, on our online forums, Ben Damman of Tachyon Technologies, Inc. and I found ourselves in an interesting discussion regarding the lack of bonding companies willing to write the small software developer. Ben has had problems finding a bonding company willing to guarantee his programming code. He brought up several good points as to why he felt the surety bond companies should expand their horizons. We will review his assertions and why a surety would or would not agree.

I informed Ben there are several reasons why most bonding companies do not write bonds to guarantee software code.

Bonding companies do not know how to underwrite programming code. The sureties do not have the staff capable of reading code, nor would they be willing to create a staff to do so. Reviewing the source code would take too long, hence the surety would not make a profit. Ben brought up a good point about using more traditional underwriting methods. They could review the business financial statements, previous work history, etc. My next point covers why bonding companies are not willing to underwrite software developers in the same fashion as construction contractors.

Bonding companies are conservative in nature and do not change their ways often. It seems most surety managers operate under the if it isn’t broken don’t fix it philosophy. Most sureties are successfully turning a profit year after year and no one wants to take responsibility for large losses. I can’t say I blame them, but I do agree with Ben that suretyship needs to be rethought in general. (see: Time To Rethink Surety Bond Underwriting)

Small software developers are going to have a hard time finding bonding for quite some time to come. One would think that the market would be created since there is a demand for it. While that is true, the surety bond industry is extremely cautious and it will take time for the market to develop.