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183. FIA Surety: Turning “DUH!” into “TA-DAH!”

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How it started: “Hi Steve, I have a strange scenario I hope you can help me…”

Our agent had a performance bond client established with a surety and the SBA program.  They needed a P&P bond for a municipal project and the surety demanded payment in advance.  The client could not comply.

The award and notice to proceed were issued and the contractor commenced with the work – but the obligee forgot about the bond, until now. The contract is completed but the client cannot receive their final payment until they file a maintenance bond.  Due to weak credit, the surety is refusing to issue unless they add additional indemnitors.  The job is finished: DUH!

We gathered a file and asked for a status inquiry form from the obligee (to confirm the degree of completion and obligee’s satisfaction with the project.)  The contractor passed along the form, but the project manager refused to complete it, stating he “never saw one of these before.” DUH #2!

We made contact with the township engineer and after a friendly conversation, were able to verify everything was OK and they promptly completed the form for our records.  We evaluated the bonding requirements and determined that the Performance bond form contained an 18 month maintenance clause (no separate maintenance bond), so the P&P bond was still needed.  FIA Surety issued it, and with no SBA support or additional indemnity required: TA-DAH!

The agent is happy.  The contractor is happy.  The township has a completed project with maintenance coverage. We bonded a job that was completed and accepted.  Now was that so hard?

FIA Surety is First Indemnity of America Insurance Company, your go-to carrier for Site, Subdivision, Bid and Performance bonds. Call 856-304-7348

Making TA-DAH moments for our clients since 1979.

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Get to Know FIA Surety: Bruce Nash

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Here is surprising info about Bruce Nash, a key person at FIA Surety.

Nurture vs. Nature.

Bruce didn’t have a choice. His family was married to the lake.

Our Bruce was born in the beautiful town of Lake George, NY and he has two siblings. The main feature of the town is… obviously the lake. 32 miles long, with over 170 islands, this is a gorgeous Adirondack setting. And Bruce’s family had strong ties to it.

The family business was a marina his grandfather founded in 1928. Bruce grew up in the business where he did “everything.” They loved the water, and this meant boating and also sea planes flown on the lake.

Bruce’s grandmother was the first female commercial pilot in Warren County, New York and part of the WAACS (Women’s Army Auxiliary Corps) during WWII. Bruce’s grandmother and grandfather both trained pilots before, during and after the war.

This is his grandfather’s 1928 Garwood, “The Jug,” it was the super boat of its day. Some were called “Rum Runners,” because those equipped with V-12 engines could outrun the prohibition era police boats! Bruce’s grandfather was a Garwood dealer and bought it new. Bruce won dozens of awards for maintaining it in its original condition.

Bruce worked three jobs to put himself through college, a graduate of DePaul’s computer programming school in Chicago.

When boating season ends, upstate New Yorkers turn to winter sports. After college Bruce took a position with Bombardier Corp, a snowmobile manufacturer. Over the course of ten years he rose to become Director Systems and Marketing for the U.S. operations in Chicago.

His next employment was with the owners of The Robert Plan (Div. of AIG) where he became President of a boat manufacturing facility located just outside of Nashville, TN. After a few years he moved to N.Y. where he became Sr. VP and Chief Information Officer of their Assigned Risk Auto business. His Robert Plan boss left the firm to become president of FIA’s sister company First MCO, and he enticed Bruce to join him.

He became head of our IT department and is now the President and COO of our sister company First Managed Care Option, Inc. and ActiveCare Scheduling (a PT and Imaging Facility scheduling service.)

Bruce designed a state-of-the-art system for the managed care of auto and workers comp claims – which is the function of First MCO. This rapidly growing business currently employs eighty people and is housed at FIA’s Morris Plains home office.

He also developed a specialized imaging system that allowed FIA to move all its archived and active paper files into one central electronic location.

“IT Geek?” No, not Bruce! Like his grandfather and grandmother before him, he became an aviator. Naturally, this led to skydiving (gulp!). The snowmobile business inspired him to become an accomplished snow racer. He was also a SCUBA diver and moto-cross (motorcycle) racer!

Today, Bruce manages to skip most of the high-risk activities, but he is a Merchant Marine Captain and avid deep-sea fisherman.

Bruce brings great technical skills, plus a bit of “dash” to our FIA family. He is a valued member of the team!

For Site, Subdivision, Bid and Performance Bonds call Steve Golia: 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Site and Subdivision Bonds – The Sequel

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In March we told you why Home builders and their Bonding Agents love Site and Subdivision bonds.  (Click to read prior message)  But don’t take our word for it.  Here’s what the International Risk Management Institute has to say about it:

“Corporate surety bonds are far and away the most preferred option for most owner/developers when you consider the potential disadvantages of the alternative guarantee forms.” (Click for entire article)

Clearly, the smart move for home builders and their bond agents is a surety bond.  And the bonding company you want is the specialist, long devoted to this market.  Unwavering since 1979.

Call FIA Surety.  It’s the smart move.

Steve Golia 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

 

See Inside FIA Office

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OK, that’s not really our office.  But we want to assure you – we’re here issuing bonds, underwriting new business and making new friends!

Be careful and safe like us (not like the picture!)  FIA wants to help with the surety bonds you need including Bid, Performance, Site and Subdivision.

FIA Surety: A bonding company serving independent agents and the construction industry since 1979.

Steve Golia 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Surety Bond Challenge: Solve This Problem!

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A key vendor / supplier is demanding that a GC provide protection for their purchase agreement. However, the project owner did not stipulate a Performance and Payment bond on the contract and none was provided. The work has started and the contractor needs to get materials delivered from the reluctant vendor.

What are the possible solutions that may satisfy the vendor? Choose one!

  1. Issue a Payment Bond on the Purchase Agreement
  2. Issue a Performance & Payment Bond on the Purchase Agreement
  3. Bond the contract in a normal way (100% Performance & Payment)
  4. Issue only a Payment Bond on the contract

(1.) Issue a Payment Bond on the Purchase Agreement?
A. A vendors purchase agreement is not the same type obligation as a construction contract. A bond guaranteeing payment of the purchase agreement would be considered a Financial Guarantee Bond (Why?  See below *) They are more difficult to obtain than a Payment Bond, so that’s not be the best solution.

(2.) So what about issuing a Performance & Payment Bond on the Purchase Agreement?
A. This is also not an option due to the differences between the nature of a purchase agreement and a construction contract.  (Details below *).

(3.) Can we bond the contract in a normal way (100% Performance & Payment)? That Payment bond would cover all vendors, so it would cover the one in question.
A. Bonding a started project is always a red flag. The underwriters initial question is “Why do they want a bond now?” It does seem suspicious, like there may be a problem with the performance of the construction work or the owner received some negative info on the contractor. Maybe the contractor has a problem and the work is in jeopardy.
Another issue is the cost. If a bond was not originally required, the bond cost was not included in the contract price. This means a bond purchased subsequent to the execution of the contract will be paid for out of the contractor’s profit margin. The Principal / GC will be looking for the most inexpensive solution possible.
Keep in mind that the purchase order amount is less than the contract price, so bonding the contract would result in a bond higher (and more expensive) than actually needed.

(4.) Can we issue just a payment bond on the contract?
A. This too will be viewed as a red flag by the underwriters. Who asks for a payment bond but doesn’t want a Performance Bond? That would be unusual.

Summary
We have concluded that it will be difficult to retroactively bond the contract, the amount of the contract is more than the purchase order and only a financial guarantee bond can be issued on the purchase agreement, so a Performance Bond may not be the solution at all!

Our Solution
In this case, we offered Funds Administration instead of a bond. This was an inexpensive alternative, and provided an assurance for the vendor that bills would be paid in a routine manner. (The project owner pays the Funds Administrator who directly pays the vendor.)
Keep in mind, however, that the Funds Administrator has no obligation to the vendor. If there is an unexpected event, such as termination of the contract, the Funds Administrator does not guarantee to the vendor that they will be paid appropriately.  A bond would, if one had been written.

*The nature of purchase orders is different from construction contracts. When issuing a P&P bond on a contract, the surety depends on the fact that the obligee / beneficiary is paying for the work, and that money may be the key to solving any claim or default.

When bonding a purchase order, the obligee / beneficiary (vendor), is not paying – they are receiving payment. That is why a Financial Guarantee Bond must be used, and is why they are harder to obtain.

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

First Indemnity of America Ins. Co.

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Free CE Update

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Love, Love, Love!
Love is in the air! We know you love free stuff, so get some here.

FIA Surety provided two free CE seminars in North Jersey recently. We’re doing one this week at an agency in Hatfield, PA.
It’s time to get your agency on our calendar. We have dates available in March. How do you set it up? Just give us a call. It’s that simple!

Speaking of simple, when you need a surety bond, we can make that simple too! Since 1979, First Indemnity of America (a carrier) has been making agents look great.

We’re your “can-do” market for:

  • Site and Subdivision Bonds
  • Bid and Performance Bonds
  • Deposit Bonds for home builders

What’s not to love?

Steve Golia 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Alpacas vs. Llamas

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Look at that face!  Don’t you love it? That sure is a cute Alpaca! Uh…or is it a Llama?  Hard to tell,  but  it’s  OK.  You still love it.

For Surety Bond Producers, it can be hard to tell the difference between a performance bond and a site bond.  In this case, it does matter because the apps and markets you use for performance bonds may not get you the site bond your client requires. You need to know the difference!

Info #1.  You have at least one market that is a strong, stable player on Site and Subdivision Bonds.  FIA Surety is your go to market.  We have been writing these confidently since 1979.

Info #2. FIA offers a free, accredited CE course on Site and Subdivision Bonds.  In fact we have nine accredited courses you can attend and learn “everything” about surety bonds!  Click for info and to register.

Info #3. That’s an Alpaca!  Smaller than a Llama: 150 lbs vs. 400 lbs. llamas also have longer faces and banana sized ears.  (Trick to remember: The “ll’s” in Llama look like the long ears.)

Steve Golia, AVP of Underwriting
FIA Surety is First Indemnity of America Ins. Co.: A carrier providing A rated, T-listed bonds in all states!
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417
Visit us: www.fiagroup.com

Alpaca <–> Llama

Godzilla Surety

Steve GoliaLeave a comment

He’s big.  And for Godzilla, that works!

But when you’re dealing with bonding companies, do you want big, or would you rather have responsive, nimble, flexible…?

At FIA Surety, we have had the same senior management staff in place since 1979.  Tons of stability and experience.  Compared to the big “monsters,” we’re a smaller surety. How does that help you?

Example: This week we got in a Site Bond, a type of bond many sureties do not support.  It was a little complicated.  The title to the property changed hands and the names on the documents didn’t match up.  It took some digging but we still approved it within a day. Why?  Because we can.

Nimble.  Responsive.

For some transactions you need Godzilla.  But for many others, you want the flexibility and willingness of FIA Surety.  Call us!

  • Bid Bonds
  • Performance and Payment
  • Site and Subdivision Bonds
  • Deposit Bonds for Home Builders

Steve Golia: 856-304-7348
FIA Surety is First Indemnity of America Ins. Co.  (a carrier)

For more cool bond stuff, follow this BLOG!

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

Steve GoliaLeave a comment

“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

For more cool bond stuff follow this BLOG in the upper right corner!

#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