Lance Surety Bond Associates, Inc.

In recent years, numerous state bills have been passed that look to hold sureties liable, and put contractors in default, when a contractor violates immigrations laws. Such bills have also made general contractors responsible (or liable) for immigration legislation compliance by all sub-contractors. However, due to the fact that the constitutionality of some of these laws is currently being challenged, the full affect of such immigration laws has not yet been experienced.

The Surety & Fidelity Association of America (SFAA) has been working closely with other interested groups to monitor immigration laws to identify what, if any, impact they will have on the surety bond industry. Specifically, the SFAA has worked to help contractors found in violation of such laws by trying to change the way penalties are handed down. Their thought is that project termination should not necessarily be the first option for a penalty, because terminating an on-going project may end up costing the taxpayers more money. Such terminations have many underlying costs associated with delays, etc, and will ultimately prove to be nonbeneficial to the public entity.

Currently, Mississippi is the only state in the country that passed immigration legislation in 2008 that will have a visible impact on contract surety bonds.

Mississippi

Throughout 2008, most retainage legislation focused on trying to limit or completely prohibit the withholding of retainage after projects are 50% complete. Retainage legislation in Alabama, Colorado, Illinois, Nebraska and also Rhode Island was defeated this past year, thanks in part to the efforts of the Surety & Fidelity Association of America (SFAA) and AIA Surety.

The most significant retainage legislation that was enacted was California Senate Bill (SB) 593. SB 593 prohibits California

Retainage is a term that applies to the contracting business, and is therefore important to grasp when learning about contract bonds. While it is not necessarily a part of the surety bond industry, it is related.

Retainage is defined as the portion of a contractor

If passed, Rhode Island Senate Bill (SB) 2323 and 2229 would have allowed anyone who is under a performance, payment or fiduciary bond (claimants, principals and obligees) to file claim against the surety bond company for a bad faith refusal to pay a claim, settle on a claim, or for failing to perform their obligations in a timely manner. The Senate Bill would have authorized claimants to go after both punitive and compensatory damages, and even attorney fees, and other costs associated with the lawsuit.

Senate Bill 2323 happens to be identical to a SB from last year that wasn

Like many industries in our economy, the U.S. construction market has taken a hit as a result of the recent credit crisis. Many constructions projects throughout the country have either stopped or been slowed down, and subsequently, the construction bond portion of the surety bond market has seen changes as well. Specifically, perhaps the greatest change to the construction bond market is the level with which underwriters of surety bonds scrutinize the cash flow, or financial health, of contractors seeking surety bonds for their businesses.

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On 9 January 2009, the Wichita Business Journal reported that the Wichita-based Martin K. Eby Construction Company Inc. and Liberty Mutual Insurance Company entered into a surety bond program with one another. This deal comes after a roughly four-year period where Eby Construction Co. was unable to purchase the contract surety bonds required in order to work on certain government projects. This inability to obtain surety bonds came as a result of a number of significant losses on jobs in both the states of Texas and Florida. Eby was forced to sell their operations in TX and FL.

In October of this past year (2008), Eby made the positive announcement that they were on the verge of regaining their ability to obtain surety bonds. A significant settlement in a lawsuit with one of their Dallas-based customers may have been the catalyst for this favorable turn of events.

Now that Eby Construction Co. has begun a surety bond program with Liberty Mutual, the company should soon be able to conduct work in the public sector. Additionally, Eby announced that they will be able to place bids to do work on certain profitable jobs in the private sector that they had previously been unable to bid on due to their inability to obtain surety backing (via surety bonds). Two of the private sector jobs mentioned by the Wichita Business Journal were Via Christi Health System and Cessna Aircraft Co.

I recently posted an article on the two major categories of surety bonds: Contract Bonds and Commercial Bonds. However, another much smaller yet significant category of surety bonds are Court Bonds. While this category of bond does not make up as much of the surety bond market as the previously mentioned categories, it is important to understand what they are, and the primary types of surety bonds that fall under court bonds.

In a nutshell, court bonds are a form of surety bonds that are required in many court proceeding in order to allow litigants to engage in the requisite legal proceedings. They can ensure that a person has the necessary protection from possible loss that could come about as a result of courts outcome. Court bonds can also guarantee that a person assigned as a fiduciary carries out his/her duties in accordance with the terms of an agreement or the orders of the court.

Here are the most common types of Court Bonds:

• Appeal Bonds - Required by a court before any appeal is made.
• Guardianship Bonds - These types of bonds ensure that legal guardians of minors or incapacitated individuals will not misuse any funds that are supposed to utilized to support that individual. (also known as Custodian Bonds)
• Probate Bonds - Bonds that are required by the court to guarantee the proper distribution of assets by the executor of an estate whenever an person passes away or becomes incapacitate. (also referred to as Estate Bonds, Executor Bonds, and/or Fiduciary Bonds)

To understand surety bonds, and how they work, it is best to start off by breaking them down into larger groups or categories. There are two major categories of surety bonds: Contract and Commercial Bonds. In this article, I will briefly explain what each of the previously listed bond types guarantees, and will also provide you with a few examples of each.

The first category of bonds I will discuss are contract bonds. Contract Bonds are purchased by a contractor (or principal) from a surety at the request of a project owner (obligee), and essentially provide obligee with assurance that the principal will perform in accordance with the terms of the contract (i.e. complete the work, pay subcontractors, material suppliers, etc.).

Examples of Contract Bonds:

Today, most surety bond consultant firms focus their efforts on internet sales and marketing. While the development of the internet has made the sale of certain bonds such as commercial bonds much easier, it has not been a major source of new business for all bond types. For instance, construction performance bonds, which generate some of the highest premiums of all surety bonds, have seen relatively small increases in new business generation via the internet, industry wide. To understand the significant difference in internet-based sales volume between commercial surety bonds and construction performance bonds we can look to three reasons:

1. Geographical location
2. Complex underwriting
3. Difficulty adjusting to new ways of doing business

Geographical location: When dealing with a construction performance bond, some sureties may have difficulty providing significant financial backing to a contractor (principal) and is not geographically close to their bond agent.

Complex underwriting: The paperwork involved in writing a construction performance bond (contract bond) can be much more time-consuming and complex than some of the commercial bonds out there.

Difficulty adjusting to new ways of doing business: We