Note: This article concerns legal issues that face contractors, their bond agents and sureties. The author is not an attorney and is not offering legal advice. Our sole purpose is to provide information regarding the underwriting and production of surety bonds. For legal advice, well you know who to call…
When a Performance Bond is needed on a Native American Tribal contract, two questions invariably come up:
- Does the obligee have Sovereign Immunity?
- In the event of litigation, is the legal venue a tribal court or the U.S. legal system?
These questions are enough to scare off many sureties, regardless of the quality of the applicant or expected ease of construction. Why is this and how can contractors and their agent’s successfully handle such projects?
In the U.S., tribes have always been treated as separate nations, each entitled to all the rights and powers exercised by any foreign nation. There are 566 federally recognized American Indian tribes, Alaska Native tribes and villages.
Tribes are distinct, independent political communities, with their own natural rights in matters of local self‐government. They have the power to make their own laws in internal matters and to enforce that law in their own courts.
The law of tribal sovereignty includes these well-settled tenets: 1) tribes have virtually unlimited authority over internal tribal affairs; 2) they are subject to the absolute power Congress has over them; 3) are immune from state law; 4) cannot be sued unless they have specifically waived their immunity; and 5) sovereign immunity only extends to individuals when tribal officials act within the scope of their official capacities.
56 Alaska Native tribes and villages are recognized in federal Indian law. The Native villages retain the fundamental attributes of sovereignty. Both Alaskan tribes and American Indian tribes have long been recognized as possessing the common‐law immunity from suit traditionally enjoyed by sovereign powers.
For contractors and their sureties, sovereign immunity means the tribe cannot be sued in a U.S. court if there is a contract dispute. This could be a huge disadvantage for prime or sub-contractors and their sureties. Imagine not being able to sue when owed money. What recourse is available for unpaid subs and suppliers if there is no payment bond?
Conversely, in the event of a bond claim, the surety and contractor may have to defend their case in a tribal court. Are they prepared for this venue? Contractors and construction company owners are indemnitors to the surety, meaning they are financially responsible for bond claims and related costs. Unlike insurance, when a bond claim occurs, it is still the contractor’s problem, so this is an issue for the surety and the contractor.
We cannot speak for all sureties, but here is the approach that has worked for us over the course of many years and numerous tribal contracts.
A “Waiver of Sovereign Immunity” must be executed by the obligee. The point of it is twofold: Now the obligee can be sued if appropriate. Secondly, it moves litigation and claims away from the tribal court and into the U.S. legal system where the process may be more predictable.
There is no formula that the waiver must follow. The waiver clause itself, to be effective, only has to be “explicit” and “unequivocal.” The clause could be as simple as “[Tribal Obligee] hereby waives its sovereign immunity from suit in any court.”
It is up to the legal department of the surety to determine the wording they feel is appropriate.
In some cases, it may be unclear if Sovereign Immunity applies.
When in doubt, require a waiver!
A second method is to modify the construction contract. The section that talks about claims and dispute resolution will indicate such matters will be heard in the local U.S. court, and adjudicated under U.S. law.
Tribal leaders will not be surprised when the surety and contractor request such changes. Sovereign immunity is a shield they guard closely and strive to protect. In some cases, tribes have waived bonds or cancelled contracts rather than give a waiver. It is an issue that must be addressed in a straightforward manner if Performance and Payment Bonds are desired on tribal contracts.
FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it! Call us with your next one.
Steve Golia, Marketing Mgr.: 856-304-7348
(Don’t miss our next exciting article. Click the “Follow” button at the top right.)