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181. How to Get Rid of Surety Bonds and Why You Should

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“How can I miss you if you don’t go away?”

Performance Bonds are issued by insurance companies – but they are not insurance policies.  When you get to the end of your auto insurance, it will expire if not renewed.  Plus, the company can cancel it in the middle of the year.  Boom, it’s done!  Insurance policies are not “forever.” Click for mood music!

With surety bonds it’s different.  First off, they’re harder to get.  Then, when you finally have it, they don’t expire! And the bonding company can’t cancel a performance bond. So how do they end?

The fact is, people focus on getting surety bonds because they are a mandatory element of many transactions, but they think little of getting rid of the bond – eventually.  Let’s go over why you want to close out a performance bond, and how to do it.

Every performance bond is married to a written contract that is identified in the first part of the bond.  They are married until death – until the contract is completed. If you have a two year contract covered by a Performance and Payment Bond, you have a two year bond, unless the contract is extended. If the contract is amended to a term of 25 months, the bond automatically follows.  If the contract dollar amount is increased, the bond automatically follows.  The point of the bond is to guarantee the Obligee’s (the beneficiary of the bond) satisfaction with the performance of the contract.  So the bond remains in force until the obligee / contract owner accepts the completed contract.

To close out the surety’s obligation, a release or acceptance of the contract by the obligee is needed.  The applicant / principal (contractor) can’t cancel or close the bond.  Only the obligee can end it.

Closing evidence can consist of a Status Inquiry form completed by the obligee.  The questions would be:

If the project IS completed:

Completion date: ___________  Acceptance date: _____________ Final contract amount: $___________

If the project IS NOT completed:

Approximate percentage or dollar amount completed: $_____________________________

Describe any disputes or performance issues on the project: _______________________________

Do you know of any unpaid bills for labor or materials? ____ No ____ Yes  If Yes, please describe: _____________________

Current estimated completion date: ____________________________________

Now that we know how to close out a performance bond, why bother to do it?  There are some very good reasons…

The Surety

  • The surety (bonding company) will conclude the liability on their books when the bond is released.
  • They also immediately earn all the remaining premium. Two good reasons!

The Contractor / Principal

  • That portion of the company’s bonding capacity will be restored to support a new contract.  This helps them qualify for more projects and larger ones. That is the source of their company revenues.
  • The “acceptance” of the work, by the obligee, is the official conclusion of the contract.  It ends the principal’s obligation – except for a “tail” such as a maintenance obligation.
  • When completed, the project is added to the company’s credentials.  They can now list the contract as a successfully completed job.  That’s how their resume is built.
  • The applicant company, it’s owners and spouses have a legal liability that arises through the indemnity agreement (a hold harmless issued to protect the surety.)  It is literally a liability which must be disclosed on their financial statements.  When the bonds are released, this company and personal liability ends.

The Bonding Agent

  • The agent wins too because more bonds can be issued.  And that’s how they make their living.

Conclusion

Everybody wins when the job is closed out and the bond gets released. This is a necessary process that should not be ignored.

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: 856-304-7348

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#168 Be A Code Breaker! (Surety Bonds)

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The Enigma Machine was a famous encryption device used by the Germans during WWII to transmit coded messages. It allowed for billions of ways to encode a message, making it incredibly difficult for other nations to crack German codes during the war.

Enigma Machine

In this article, You will learn how to break a code, how to solve a mystery in 20 seconds or less – every time. It is a surety bond mystery: The key element that determines the nature of the bond and predicts the successful underwriting path.

Here are your clues.

  1. “KNOW ALL MEN BY THESE PRESENTS:”  These words are the common beginning of surety bonds.  You’ll see them over and over.
  2. “WHEREAS” will start one or more paragraphs which describe the circumstances in connection with the bond need.
  3. “NOW THEREFORE, THE CONDITION OF THIS OBLIGATION…” is the beginning of the promise in the bond.  It is the point of the bond guarantee and it determines the underwriting path.

Find the “NOW THEREFORE” paragraph and you can break the code.  What does it guarantee?  If it is the correct performance of a contract, the underwriting will concern the applicant’s ability to complete the work.  If the guarantee is to pay money when due, the underwriting will concern the applicant’s credit history and financial strength.  It makes sense.

Test your new skill

Ever hear of an ARC bond?  Probably not, but here is the “Now Therefore” clause for you to analyze:

NOW THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH that if the Principal shall duly comply with the provision of said Agreement with respect to all amounts owed to the Obligee, as in said Agreement provided, during the term of this bond as hereinafter provided, then this obligation to be void, otherwise to remain in full force and effect in law…

OK Code Breakers, what can we conclude?

  1. It promises compliance with an agreement, so we’ll want to review that document.
  2. The applicant must comply with respect to “all amounts owed to the Obligee,” so the bond is guaranteeing the payment of money in the future.
  3. How can we determine if they are likely to do that?  Need to get financial and credit info on the client.

So there you go!  In 20 seconds you scoped it out and already have an idea about the underwriting, difficulty in placing, and potential markets that may have an appetite.

The underwriting path always follows the nature of the guarantee, which you will find in the NOW THEREFORE clause.  It’s that simple to break the code!

What a great feeling when you deal with the real experts.  You know you’ll get fast, efficient processing by folks who really care.  Call FIA Surety with your next surety bond.

FIA Surety is First Indemnity of America Insurance Company based in Morris Plains, NJ.  We provide site, subdivision, bid, performance and other forms of surety bonds.

Steve Golia, Marketing Mgr.  856-304-7348

 

186. Bonding Companies: Can’t Live With Them, Can’t Live Without Them

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  • “I don’t know what you want unless you tell me.”
  • “Nothing is ever enough for you.”
  • “No, those pants don’t make you look fat.”

Sound familiar?  Have you uttered these words?   Were you talking about your romance life, or your bonding company (except for the pants comment.)

It turns out that much of the frustration we have in life arises from a failure to see things from another point of view. Husbands and wives know this.  But the good news is that there is a common solution.  Open communication and good listening skills are the key.  Can this be applied to suretyship?  (For mood music, Click!)

“What’s with all the Questions?!”

This is a good place to start.  Why do bonding companies ask so many questions?  And just when you get to the end of round one, they think up more.  It’s like they don’t ever want it to end!

Answer: To a degree, it doesn’t ever end.  That’s because the credit analysis a surety performs is based on info that constantly changes – and will do so without notice to the surety. They have to keep a finger on the pulse to be confident when issuing bonds.

“Why do I have to give my personal indemnity AND pay a premium for the bonds?”

It seems like the bonding company is taking no risk and they get paid for it!

Answer: Actually, personal indemnity does not guarantee that a surety will not have a net loss on a bond claim.  When a claim occurs, the company owners may already be depleted (trying unsuccessfully to resolve the problem.) When the “stuff” hits the fan, the surety has to foot the bill and the indemnity may be worthless.

“Do these pants make me look fat?”

When contractors start to pursue an excessive work load the bonding company may put the brakes on. They don’t want the company spread too thin with insufficient management and financial resources. Actually, dying from an excessive amount of work (too fat) is more prevalent than the opposite.

The surety wants to be sure the client remains stable and able to perform their work – and thus avoid any possibility of a bond claim.

Conclusion

Are bonding companies unfathomable, impossible to understand? No, it’s just that, unlike insurance companies, they are risk averse.  They operate on a very thin margin and problems (claims) of any size can hurt them.  Their very survival depends on being prudent and conservative.  This means ask questions and move forward with caution.

So now, can you love your surety?  Maybe a little bit…

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site and Subdivision Bonds since 1979 – we’re good at it!  Call us with your next one, Bid and Performance bonds, too.

Steve Golia: 856-304-7348
First Indemnity of America Ins. Co.

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185. Surety Bonds Are Not Fair!

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Why are some surety bonds better than others? Why can small ones be harder to get than big ones?

Construction companies are among a bonding company’s most important clients. They are the source of Performance and Payment bonds which guarantee their construction contracts. For a bonding company (surety), these are probably the largest and most lucrative transactions. So why would the surety risk losing a client by giving tough terms on an obviously small bond?

There are many different types of surety bonds, and contractors may need a variety of them: Bid bond, performance, payment, maintenance, license, permit, court, are a few. In this article we will discuss why the big ones (large dollar amount) can be easier to get than small ones – even for the same applicant.

The answer to this question lies in the nature of the obligation, not the dollar amount. A good way to illustrate this is to compare a Performance bond to a Wage and Welfare bond.

Performance Bond

Performance and Payment (P&P) bonds concern construction contracts. They guarantee that the applicant will perform the project in accordance with all aspects of the written contract, and they will pay the related bills for suppliers of labor and material.

Wage and Welfare Bond

This type of bond is needed by union contractors (companies that employ union workers.) The W&W bond guarantees that the construction company will pay the union wage rate as required and make the related periodic contributions to the union benefit plans such as the pension and health insurance program.

It’s Just Not Fair!

P&P bonds range in amount from a couple hundred thousand dollars to tens of millions, whereas a W&W bond is often under $100,000. So why can it be easier to get the big one? Why can a $500,000 performance bond be easier to get than a $50,000 union bond?

The answer lies in the nature of the obligation – and the worst case scenarios.

Let’s assume the contractor goes out of business. With a performance bond, the surety steps into the contractors shoes. They must make arrangements to complete the project in accordance with the contract. The beneficiary of the performance bond (aka the obligee, the owner of the contract) continues to pay out the remainder of the contract amount as work progresses. Now they pay the surety performing the completion. This is called the “unpaid contract amount.” Even if the contractor falls flat and has no money personally, the unpaid contract amount is a resource the surety can depend on – and hopefully avoid a net loss on the claim.

The union bond is a promise to pay funds at a future date. It is a financial guarantee – the toughest type of surety obligation. The underwriters will look into their crystal ball… Oh, sorry, we don’t have one.

The surety is guaranteeing the future solvency of the construction company, not an easy task. And if they are wrong, if the contractor cannot make their union payments because they have no money, then there is no money for the surety, either.

Q. Who is likely to pay the wage and welfare claim?

A. The surety (a net loss)

It is the tough nature of some small bonds (wage and welfare, release of lien, supersedeas) that makes them exceptionally hard to get – often requiring full collateral. On the other hand, the surety may give the same applicant a $300,000 performance bond based primarily on just their credit report!

Bottom line: It just ain’t fair, but we never promised it would be – because the nature of the obligation differs. That is the deciding factor, even more than the dollar amount of the bond.

Want to deal with real experts on your next surety bond? FIA Surety, a NJ based insurance company, provides Bid, Performance, Site and Subdivision Bonds.

Steve Golia: 856-304-7348
FIA Surety / First Indemnity of America Insurance Company

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173. Bid Results / Sgt. Joe Friday

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    From 1951 to 1959 Dragnet was a defining police series that featured Jack Webb as Sgt. Joe Friday.  Joe was famous for an interrogation line he often used: “Just the facts, ma’am!”

When bonding companies issue bid bonds they need to gather facts, too. It is an important process with implications for both the surety and the contractor.  For mood music, click.

So here are the facts, ma’am!

Bid results are the various proposal amounts submitted by contractors pursuing a particular project.  The bids are submitted at a designated time and place.  The list of bidders “lowest, second, third, etc.,” including the company name and $ amount, are the bid results.

The first party to know this info may be the contractor. They often attend the bid opening and write down the results.  Remember, they have a vested interest in the outcome.  They’re hoping to acquire a new project.

It is important for them to report the results promptly to the bonding company.  Here’s why:

Timely Issuance of Performance Bond

If the contractor is low bidder (offering the most favorable price to do the work), an award can be expected. The performance and payment bond will be needed by a set date to avoid loss of the project.  Reporting the bid results is the first step in this process.

Excessive Bid Spreads

A “bid spread” occurs when there is a significant (>10%) difference between the low and the second bidder. This is a red flag for the surety and contractor. All the bidders wanted the work.  They spent time and money developing their proposal. An excessive bid spread means the low bidder has a unique advantage (better expertise, prior experience, special equipment, lower material prices, etc.) over the other bidders OR they made a bid mis-calculation and are underpriced. (*Why is this a concern?)

If the contractor has a special advantage, they must share this info with the bonding company in order to obtain the P&P bond when required. The surety must be confident that the project will be completed properly.

If they made an error, they must notify the obligee / project owner that they wish to withdraw their bid.  If done promptly, they may avoid having a bid bond claim (for failing to move forward.)

Restore Capacity

When a bid bond is issued, underwriters consider a portion of the contractors surety line to be in use – under the expectation that they may win the project and need a P&P bond. If the contractor / bidder is not the low bidder, the capacity is restored to their surety line to support another project – as soon as the surety is notified.

For all these reasons, the prompt reporting of bid results is necessary.  A tight bid is a win for the contractor and surety.  The bidder acquires additional sales volume and the surety books a premium.  It’s how we all make money.

* Why is an excessive bid spread a concern?

If the contractor proceeds with a project that is underpriced, they may end up losing money on the work.

It’s an issue for the surety too, because they are the guarantor of the project.  They must complete the work if the contractor defaults, and they rely on the fact that the contract amount is adequate to accomplish this.  If it is not, the surety could face a net loss.

Excessive bid spreads are bad for everyone, even the obligee. If they award an underpriced project, they may end up with poor workmanship, missed deadlines and possibly a defaulted contract, ma’am!

Want this expertise and creativity on your next Bid or Performance Bond? FIA Surety is a NJ based bonding company that can help! We have specialized in Bid, Performance, Site and Subdivision Bonds since 1979.

Steve Golia is Marketing Manager for FIA Surety.  Call Steve now: 856-304-7348

Visit us Click!

174. When You Can’t Get a Bid Bond

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Bid specifications often provide alternative forms of security to accompany the contractor’s proposal. Cash, a Certified Check, or a Bid Bond may be permitted.

Let’s take a look at the implications of each and when to use them, or not!

First, a quick primer on bids:

When contractors submit a proposal on bonded public work, bid security is normally required. The security assures the bidders sincerity: They will accept the contract if offered or pay a penalty for walking away.

Typically, the specifications require a Performance and Payment Bond or other form of acceptable security equal to the contract amount.

About the forms of bid security

1) Cash is King, but not when it comes to bid security. Bid security amounts are usually thousands of dollars so this method is not realistic for many contractors.

2) Certified Checks are similar to cash. This means the contractor must estimate the maximum proposal amount and arrange for a check payable to the obligee. Initially, the bid bond percentage is known but not the bid dollar amount. The specifications require security ranging from 5-20% of the proposal amount. However the actual proposal amount is often not compiled until close to bid time when all the vendor prices have been received and negotiated. To use a check, the contractor must estimate an amount sufficiently high so it is adequate to cover the bid figure when it is finally known.

3) Bid Bond issued by the surety. The advantage is that the bidder’s money is not tied up (as compared to cash or a check). As a precaution on public work, obligees hold the bid security of the second and third bidders until the contract is awarded – which could take weeks. This means the contractor’s cash or check could be tied up and the likelihood is that they will not win the project.

Looking at these options, a bid bond is the preferred choice. However, a bid bond is not always available when needed. When this happens, the bidder may consider an alternative.

Normally there is no requirement to use a bid bond specifically. The bidder also has the latitude to use one surety for the bid bond and a different one for the P&P bond (although some sureties dislike following another’s bid bond.)

Why would a bid bond not be available?

1. The contractor does not have a surety.

2. Short notice: Not enough time for the surety to make an underwriting decision.

3. Short notice 2: The surety has approved the bid bond but there is not enough time to issue.

4. Bid bond declination: The surety considered the project but will not support it.

5. Bid bond declination 2: The surety wants to support the project but they are unable to due to their lack of credentials, their insufficient capacity, licensing issues, or other problems on the surety’s part.

6. When contractors are changing bonding agents or sureties, there could be a gap in service where the new surety is not ready.

In all these cases, the contractor can decide to bid with cash or a check. However, there may be a downside to consider. Let’s look at each of the six scenarios described above.

Risks of bidding with cash or a check

1. No surety: The contractor could forfeit the bid security if they are awarded the project but are unable to produce the P&P bond.

2. Short notice: The risk here is the same as #1. Forfeiture could be the result if no P&P bond can be arranged within the timetable allowed.

3. Short notice 2: This is one situation where the check may be a reasonable alternative assuming the surety has provided a written approval to bond the contract.

4. Bid bond declination: This is a particularly troubling situation because the effort to arrange a Performance Bond faces two obstacles:

  • Time: Contract awards demand the issuance of the P&P bond by a specified date. There could be insufficient time to set up a new surety relationship.
  • The new surety, which hardly knows the contractor, is being asked to bond a project the incumbent surety declined. The incumbent was willing to lose the account over this project. Can the new underwriters be confident they are making a better decision than those who know the account well?

5. Bid bond declination 2: This example isn’t as onerous as #4. The problem is that the surety wants to bond the project but can’t. The new underwriters will be less hesitant than in #4. (So why don’t they just issue a bid bond to help the client get to the next step with another surety? See answer below.) If cash or a check is used, a surety must be arranged to prevent forfeiture.

6. Changing sureties: Handle the same as the short notice situations.

Conclusion

While it’s true bidding with cash or a check is usually an option, it places the contractors funds at risk. Contractors should not consider using cash or a check unless the availability of the P&P bond is confirmed in writing.

Answer to #5: The surety would not want to issue the bid bond if they can’t provide the performance bond, which is the main product of the surety operation. Second reason, if no performance bond is arranged by the client, the bid bond could go into claim. There is little for the surety to gain in this situation.

Note to agents, contractors and other readers: We are not offering legal advice and do not assume to have covered all possible situations in this article. Every bonded contractor should have a good surety attorney to handle such matters.

Want this expertise and creativity on your next Bid or Performance Bond? FIA Surety is a NJ based bonding company that can help! We have specialized in Bid, Performance, Site and Subdivision Bonds since 1979.

Steve Golia is Marketing Manager for FIA Surety.  Call Steve now: 856-304-7348

Visit us Click!

#166 Performance Bonds: How To Avoid Funds Control

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Funds Control, Escrow, Funds Administration – are all the same thing, and can be part of the process when a Performance and Payment Bond is needed.

What is it, and how can you avoid it?

Funds Control is an underwriting device used by some bonding companies. The procedure is specifically intended to reduce the risk associated with the Payment Bond aspect of the surety’s exposure. The surety is guaranteeing that suppliers of labor and material will be paid. If they are not, the creditor is entitled to make a claim on the Payment Bond for recovery.

The funds administrator acts as the paymaster on the contract. They pay everyone, including the contractor. Under this arrangement, the contractor is not handling money or disbursing funds. This makes the surety confident that folks will be paid appropriately (thus preventing payment bond claims,) and it also assures that none of the money for our bonded contract is shifted over to support other unbonded projects (an illegal action.)

Now the paymaster doesn’t work for free. They perform monthly checking on the contract status including the billings, they gather lien releases from the vendors, they keep the books on the project and write all the checks on behalf of the contractor. The cost if this may be.5 – 1% of the contract amount, paid by the contractor. Normally it comes out of their profits.

Contractors may be unhappy with the fee, and they always worry about the turn around time to get checks issued by the administrator each month. They need to keep the project moving.

So let’s look at an alternative procedure that doesn’t cost the contractor any money, prevents any possible delay in turn around time… and still protects the surety on the payment bond.

The alternative is to have Joint Checks issued by the obligee. What does this mean?

Joint Checks are issued by the obligee / project owner in the name of the bonded contractor and their vendor. For example, if the contractor owes the lumber yard $20,000, a check is written payable to the contractor and the lumber yard specifically for $20,000. This procedure assures that funds sent to the contractor must end up in the hands of the supplier. Under the normal method of payment, a lump sum check for multiple vendors is sent to the contractor, and everyone hopes the funds will be used appropriately / promptly to pay bills related to the bonded work. Please note: That doesn’t always happen. And when money is mis-directed, a payment bond claim can result.

Conclusion: Compared to Performance Bonds, Payment Bonds are the most frequent area of surety bond claims. When the bonding company needs an extra cushion to assure the proper handling of money, Joint Checking is an alternative to Funds Control that is fast and free for the contractor – and helpful to the surety.

Want this expertise and creativity on your next Bid or Performance Bond? FIA Surety is a NJ based bonding company that can help!  We have specialized in Bid, Performance, Site and Subdivision Bonds since 1979.

Steve Golia is Marketing Manager for FIA Surety.  Call Steve now: 856-304-7348

Visit us Click!

#165 Performance Bonds: How To Avoid Collateral

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This is a nasty subject. Not because collateral for surety bonds is inherently bad, but because it is a subject of great angst for contractors and their insurance / bond agents. For example:

  • Why is the bonding company taking money from me when they can see I’m in a weak cash position? I need it to successfully perform the new project.
  • You don’t pay me interest on the money? Why not?
  • When the job is half done, you will not release part of the collateral?
  • You will not release the collateral upon acceptance / completion of the contract?
  • You will not release the collateral until the warranty period ends?
  • Etc. Plenty of aggravating phone calls and emails.

With all this aggravation ahead, why do some bonding companies require collateral? The reason is to protect themselves in the event of a bond claim.When a contract surety loss occurs, the claims department hopes to have two dependable resources for financial recovery:

  1. The unpaid balance of the contract goes to the surety as they complete the work
  2. The surety sues the applicant / company and its owners to recover the loss

Collateral requirements arise when the surety wants to have certainty. If a problem develops, they don’t want to find that the client has no money left, or they declared bankruptcy… or left the country. If they are to write the bond, they want a guaranteed way of having financial recovery.Bearing in mind that collateral is a dear price to pay for a bond, let’s look at an alternative approach that helps the surety, but doesn’t take a big bite out of the contractor!

“Retainage” is money the project owner hold back (retains) to assure the final completion of the project and payment of related bills. If the retainage is 10%, the contractor receives 90% of the funds they are owed as the job progresses. At the end, the contract owner / obligee will still be holding 10% to keep the contractor interested in reaching total, satisfactory completion. In this manner, the retainage money protects both the obligee and the surety – making a bond claim less likely.

“Surety Consent to Release of Final Payment” is a voluntary procedure obligees may use as a courtesy to the surety. The last bit of contract funds may be useful leverage to get the contractor moving for the final contract adjustments. There may be building cracks, broken glass, defective lights, painting errors – small stuff that the obligee cares about but the contractor may find annoying to correct. The Surety Consent is another way for the bonding company the avoid a claim. “Fix this problem or we will not agree to release your final payment.”

How can these two useful tools be incorporated to guarantee they will help the surety, and therefore replace the need for collateral?

The answer is to add a condition to the bond (mandatory compliance required by the obligee) stating that there may be no release or reduction of retainage or final payment without the prior written consent of the surety. Now the bonding company is guaranteed to have a financial resource available and the amount is known in advance – just like collateral. But the contractor didn’t have to drain the company bank account to accomplish it: Win-win!

What if the contract terms do not provide for a retainage procedure? One can be added by contract amendment. If Funds Control (an escrow agent) is in use to handle the contract disbursements, a retainage procedure can be added to the funds control agreement.  Keep this alternative procedure in mind if your bond underwriter needs help to be more creative with the underwriting solution.

Speaking of Funds Control, watch for our article next week “Performance Bonds: How to Avoid Funds Control.”

Want this expertise and creativity on your next Bid or Performance Bond? FIA Surety is a NJ based bonding company that can help!  We have specialized in Bid, Performance, Site and Subdivision Bonds since 1979.

Steve Golia is Marketing Manager for FIA Surety.  Call Steve now: 856-304-7348

Visit us Click!

Bond Underwriting Challenge

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This is a real case that was handled by our surety bond experts… a doozie! See what you can make of it.

The facts:

  • This is a Performance Bond request for a multi-million dollar subcontract
  • The applicant / principal is a long established company
  • They have successfully completed similar sized projects
  • The company has a modest net worth, but is on a profitable trend. Ratios are OK.
  • Personal financial statements of the stockholders add more net worth to the picture
  • The company is owned by a father and son. Son is the primary stockholder.
  • We noted their SS numbers are only a few digits apart
  • Father has a substantial net worth. Son has a small net worth as indicated on his personal statement.
  • The applicant has started the subcontract
  • The GC / obligee has a mandatory bond form – very tough. It effectively makes it a forfeiture bond (obligee completes the job and sends you the bill.)
  • Father has a living trust
  • Son also indicated he has a trust

A lot of moving parts. What are the issues?

  1. Low company net worth. Too low for the size bond requested.
  2. “Close” SS numbers imply these individuals are immigrants (received SS numbers at about the same time). Are they U.S. citizens?
  3. Started subcontract. Why were they allowed to start without a bond? Degree of completion? Work acceptable? Bills paid? On schedule?
  4. Do we want to write a forfeiture bond form (financial guarantee?)
  5. What assets are in the trusts? Can they give indemnity? Will we rely on the indemnity of a trust?

– Think of your possible solutions – 

Here is the approach crafted by our underwriters:

  1. Low company net worth. We do not prefer to require collateral because it may be counter-productive, making it harder for the client to complete the project. Instead, the client agreed to add capital to the company – an investment in their future. The funds could be a subordinated stockholder loan, or a stronger method: Additional Paid-in Capital. The latter is more permanent and therefore desirable. The client agreed to permanent capital that would be verified in writing by their CPA and supported by a current interim balance sheet.
  2. Close SS numbers. Why would we inquire about anyone with a social security number? It is because the number itself does not prove citizenship – nor does the filing of a US tax return. Non-citizens authorized to work in the U.S. can get a SS#. “Tax residents” are permanent residents and green card holders who are non-citizens required to pay U.S. taxes. All sureties are cautious when taking the personal indemnity of a non-citizen. They may easily flee the country to avoid their obligations. On this account we determined the father and son were immigrants as we suspected, and naturalized U.S. citizens.
  3. Started subcontract. This would be clarified by obtaining our All’s Right Letter from the obligee, stating the relevant facts on the project (degree of completion, on time, no problems, etc.)
  4. Bad bond form. We had previous dealings with this major GC and negotiated a bond modification that made the bond operate more normally. They agreed to use the bond mod again.
  5. Trusts. It turned out there was only one trust. The son was the beneficiary of the fathers trust, no separate trust of his own. A review of the father’s trust showed it was not prohibited from signing the indemnity agreement. However, living trusts are revocable, meaning the terms can be changed and assets moved out – making them unreliable indemnitors. And it contained the single most important asset, the father’s residence. How to overcome this last obstacle? Our solution: We will place a lien on the property giving us access regardless of changes in the trust.

There you have it. Did you come up with solutions to match ours? It was a tough / complicated case, but we worked hard to solve it.We’ll work hard to solve your bond cases too. Bid bonds, performance and payment, and also site and subdivision!

Include us in your bond production efforts. We can make it happen.

 

Steve Golia is FIA Surety’s Marketing Manager.

The insurance company provides Bid, Performance, Site and Subdivision Bonds with speed and creativity. Contact us today and let’s discuss how we can help. Call 856-304-7348.

Visit us Click! FIA Surety / First Indemnity of America Ins. Co., Morris Plains, N.J.

Surety Bonds: How I Voted

Steve GoliaLeave a comment

Last Tuesday was the big day: 

  • “The most consequential mid-terms of our lifetime!”
  • “Your mid-term vote is a chance to affirm / reject (choose one) the president’s agenda!”
  • “The end of life as we know it!”
  • “Blah-blah-blah!”

I’m not making a joke about voting.  I think it is a privilege.  As citizens of a democracy, we owe it to all who have suffered and died defending this noble right.

So on Tuesday, I awoke bursting with patriotism and planning to cast my ballot.  But I decided to do it differently.  You’ve heard the expression, “Vote With Your feet.” This time I’ll do it!

I identified myself to the voting lady and she sent me to booth #2.  I quickly removed my shoes and socks.  It was hard getting the curtain open.

I entered the booth and reviewed all the choices.  Here it comes.  I steadied myself and placed my big toe on the lever.  I need to flip the lever, slippery, hard to turn it… I got it!

It became easier as I proceeded.  At the end you push a button to register your choices.  My big toe wouldn’t fit so I used the side of my “pinky toe.” Awesome!

I must admit, voting with your feet is harder than I expected, and a lot less fun. Why do people like it so much?  Eventually… it dawned on me what the expression means.  My “foot voting” was a fiasco!

You don’t have to make the same mistake. It’s not too late for you to vote with your feet – the right way.  Choose what’s better for you.  You can do it on Surety Bonds:

  • Circular 570, T-Listed bonds in excess of $10 million
  • Increased commissions
  • Superior, 365 service.
  • Same day response on new submissions.

You can have all this.  You should have it all! Vote with your feet and come over to KIS Surety for all these benefits.  Give us a call with your next Bid or Performance Bond.

Steve Golia, National Surety Director, KIS Surety

856-304-7348