Surety Bond Claims State of Colorado 05/15/2013

State of Colorado Surety Bond Overview Construction Contract Surety Bonds  Bid – Guarantees bidder will enter into formal contract and provide required P&P bonds  Performance – Guarantees principal will perform in accordance with the construction contract  Payment – Guarantees principal will pay all suppliers, labors, subcontractors on given project License/Permit Bonds  Smaller in nature and filed to obtain license or permit. 1

State of Colorado Surety vs. Insurance Surety Bonds are Not Insurance 3-Party Agreement  Obligee – Owner  Principal – Contractor  Surety Obligee is the only claimant on a performance bond Surety Bonds represent the surety’s prequalification of the contractors ability to complete the contract. Surety’s underwrite for 0% loss 2

State of Colorado Disclaimer This information is not to be construed as legal advice. Prior to any default, termination, submission of a claim legal counsel should be consulted. 3

State of Colorado Surety Claims Surety Bonds Do not Guarantee a bonded contract will be dispute or disagreement free. Early Communication with contractor and surety helps. Generally a surety company cannot take action unless a formal termination is made. The bond guarantees the contract Contract Terms & Bond Terms Dictate Claim Process 4

State of Colorado Claim Process Contractor is in default of contract  Staffing & Schedule Issues Notice sent to Contractor and Surety to correct Surety responds to both Owner and Contractor  Surety will investigate – time frame governed by contract and bond form Surety responds to Owner  Contractor has financial issues and will not be able to complete project. Owner formally terminates Contractor 5

State of Colorado Surety Response Options Generally Surety Has 3 Response Options  Tender Option – Surety provides new mutually accepted contractor. Owner contracts directly. Surety will fund excess costs.  Take Over – Surety takes over construction contract and completes the work.  Surety elects not to Complete 6

State of Colorado Other Response Actions Surety cash flows contractor to completion Surety installs additional controls and monitoring Other mutually agreed upon actions to cure default(s) 7

State of Colorado Claim Process Surety Companies need time to conduct their investigation Questions? 8

State of Colorado Disclaimer This information is not to be construed as legal advice. Prior to any default, termination, submission of a claim legal counsel should be consulted. 9