Construction & Beyond Surety Bonds For Public Works

Why Bonds Are Required Miller Act of 1935 –For federally funded public works projects over $100,000 “Little Miller Acts” –For state & local public works projects

What is a Surety Bond? Surety ObligeePrincipal

Surety Bonds Vs. Traditional Insurance Surety BondsInsurance 3-party2-party Risk transfer Duty to obligeeDuty to insured Regulated by State Insurance Departments Premium fee for prequalification services Premium actuarially determined Project specificUsually term specific Penal sumPolicy limits

Elements Of Prequalification Capital Capacity Character Capital Capacity Character

Capital: Financial Strength Capital Financial statements Working capital Work-in-progress Indemnity

Capacity: Ability to Perform Capital Financial statements Working capital Work-in-progress Indemnity Capacity Resumes Contingency plan Business plan- short & long term Equipment

Character: References & Reputation Character Reputation Relationships References Capital Financial statements Working capital Work-in-progress Indemnity Capacity Resumes Contingency plan Business plan- short & long term Equipment

Role of the Underwriter Look at obligations Determine the risk Provide capable principal Underwriter

Obligee’s Responsibilities Term of the agreement Timely & adequate payment Adequate insurance Payment of property taxes Protect value of contract as an asset Obligee

Contract Surety Bonds Bid bonds Performance bonds Maintenance bonds Payment bonds Supply bonds

Commercial Surety Bonds Court bonds License & permit bonds Public officials bonds Bonds protecting the federal government Miscellaneous bonds

Underlying Agreement Primary instrument to establish risk associated with the guarantee Requirements contained in the contract documents

Benefits of Surety Bonds Protects the interest of labor & vendors on construction projects Surety company assumes the responsibility of investigating & validating claims Surety Bonds

Functions of Surety Bonds Competitive bidding process “On time performance” Saves tax dollars Surety Bonds

An Owner’s Guide To The Surety Claims Process

When Problems Arise.... Keep the surety informed of the principal’s progress If principal defaults, submit written declaration of default Allow the surety time to investigate the claim Obligee

Surety’s Responsibilities In a Claims Situation Principal’s contractual obligations Obligee’s contractual obligations Principal’s defense Whether the obligee has met its obligations Surety

Managing The Claims Process Be cognizant of legal position Avoid improperly worded letters Written notice of known problems Ask for a specific response Obligee

Surety Responsiveness Be reasonable in your expectations Be diligent in providing notice & maintaining records Contact insurance commissioner Obligee

The Advantages Of Surety Bonds Qualified vendors Competitive pricing Timely contract performance Quality product Protection against defective materials & workmanship Surety Bonds

The Advantages Of Surety Bonds Protect taxpayer dollars Financial recourse Insulates public officials Efficient management of public works administration Surety Bonds

Your Surety is Your Consultant Financial Security Qualified Principals

For More Information Surety Information Office | SIO is a joint initiative of The National Association of Surety Bond Producers (NASBP) and Surety & Fidelity Association of America (SFAA).