t-list

Secrets of Bonding #160: Deep in the Weeds with Set Aside Letters

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In this article we will peel back the onion on Set Aside Letters (SAL) issued by banks in connection with construction loans.  What are they, when they are useful for bonding companies and when are they not?

Here is the essence of such documents:

“The agreement covering the project will provide that the funds in said impound account are … to be disbursed for payment of the (Name of Project) mentioned above and only after (Bank) has satisfied itself that the work paid for has actually been performed… In the event (Borrower) fails to complete the project described herein… all funds remaining in said impound account shall be immediately available to Surety to complete and pay the costs of said project, and in such event, (Borrower) waives any claim or interest in the remaining funds. Surety shall not in any way be obligated to repay said funds so used to (Bank).

This is an irrevocable commitment of funds which is not subject to recall or offset by (Bank).”

Pretty interesting!  This letter / agreement keeps the loan in play to fund the completion of the project  – even if the borrower (bank customer) fails / defaults.

When Are Set Aside Letters Used?

These documents are a common underwriting tool when a Site or Subdivision Bond is issued by a surety. If the bond applicant (who is also the developer and borrower) is relying on a construction loan to fund the bonded work, the SAL protects the surety by providing funds for the completion of the work in the event of a default.

What a great idea.  So why don’t we use these on everything?  Let’s look at another example.

Commercial Projects

The project owner hires a bonded contractor and a bank loan will fund the project.  The bank needs a guarantee that the asset / project (which backs the loan) will be built as intended.  A Performance and Payment Bond accomplishes this and assures there will be no Mechanics Liens against the property for unpaid bills.  These two aspects benefit the project owner and the lender.  Keep in mind, in a borrower default situation, the bank becomes the new owner of the property.

It is common for the bank to stipulate that a bonded contractor be used, and they may want to be a named beneficiary on the P&P bond – accomplished by issuing a Dual Obligee Rider.  In turn, should the underwriter require a SAL from the lender?

On Commercial projects, the normal practice is to NOT obtain a SAL from the lender.  Why not?  Why is this different?

Choose one:

a. The bank is a secured lender

b. The bank can subrogate against the borrower’s assets

c. The Dual Obligee Rider serves a purpose similar to the SAL

a. and b. are true, but the answer is c.

Welcome to the Weeds

We’re going in now. The Dual Obligee Rider adds the lender as a beneficiary with all the rights and obligations of the obligee named on the bond (the project owner).  And what are they?  Obviously they are entitled to make a performance claim and have the project delivered as indicated in the contract.

The named obligee also has obligations, one of the most primary is to PAY the builder. Important: The obligee is prohibited from making a performance claim if they have failed to pay the contractor.

Therefore, when the bank is included under a Dual Obligee Rider, they accept the benefits and obligations.  If the borrower defaults, the lender cannot make a bond claim unless they continue to pay the construction loan to the surety.  (Now the bank owns the project and the surety has become the contractor.)

Summary

Is this starting to make sense?  When a borrower defaults on a commercial project, a lender included by Dual Obligee Rider cannot make a claim unless they continue to pay the project funds to the surety.

Deeper Weeds

On Site and Subdivision there is a unique risk – the lender can take a free ride on the surety by having the bonding company pay out of pocket to complete the project.

Site and Sub-D bonds have the local municipality as obligee, not the bank.  The bank doesn’t want a Dual Obligee Rider because they automatically receive a financial benefit if the municipality makes a bond claim to demand completion of the project.  If the borrower has defaulted, the bank has the opportunity to withhold the balance of the loan (the borrower is gone), and watch the surety pay to complete a project they now own.  And they were not even the bond claimant…

This is the risk sureties avoid on Site and Subdivision Bonds by requiring the SAL that keeps the loan in play, even if the bond applicant / borrower has failed.

Admittedly, this is a pretty obscure subject, but also interesting to us “bond nerds.”  It never hurts to understand how things fit together.  These skills help us solve your complicated bond opportunities.  Take advantage of our expertise when the next one pops up.

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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Secrets of Bonding #159: Beware the False Asker

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Surety Bond Producers have one main goal: produce the business and move on.

You know there is a process when submitting a surety bond for approval but hate that sick feeling when the underwriter comes back with a ton of questions.  Let’s face it, customers just want to complete the transaction and get on with their lives.  They have more important things to do than fill out forms, scan documents and complete applications.  You know you’ll get push back if you bug them.  

What’s more, the questions may result in a dead end, a declination!  Did the underwriter already form an opinion?  Did they already decide the account is not for them, but just want to complete the file… to have a complete file?

We will call such a person the “False Asker” – an underwriter who puts you through the paces, just to say no at the end.  They never really wanted to write the bond and are developing the file under false pretenses.  They send you on a fools mission.  It is 100% a waste of your time!

Or just maybe, questions are the opposite…  The bond underwriter thinks the account may be a fit, but just needs to check a few more points.  This could be the first step on a successful journey. Here’s more: There may be something wonderful about the questions good underwriters ask.  Let’s explore.

When reviewing the file, the analyst marks off elements of strength and weakness.  For example, the company is 10 years old, but current management has only been in place for a year (a plus and a minus).  Or maybe the net worth is strong, but debt is high resulting in too much leverage.  If there is more good than bad, an approval may be in order – after additional development. 

Now comes the gift: The key points, the underwriting questions, are an insight to the decision making process.  They are keys to the underwriter’s mind.  With favorable answers, authorization may ensue. The questions chart a course that the producer could imagine but not confirm.  In this manner, the underwriting questions are priceless, the keys to success.

Remember, there is room for frustration on the underwriter’s side, too.

Q. Which of the underwriting questions are optional? You know, the unimportant ones?

A. They are all important.

Sometimes we ask 5 Q’s and get back 3 A’s.  Then re-ask the 3 and get back only 2.  It’s like beating your head against the wall…

It all comes down to this:  Beware the False Asker.  You must avoid that person who churns the file and wastes your time.  Every producer has been through it.  You answer questions for two weeks and get a declination they could have figured on day one – and not wasted your time.

A good underwriter only develops an account they intend to support.  They like it and want to proceed, but must tidy up the file. Their Qs are a gift, the path forward, the key to your success if you follow through willingly and diligently.

Judge all of us by our performance:

  • Good underwriters are prompt. For example, our office provides a same day response on all submissions.
  • Are our responses concise and easy to understand?
  • Do we offer a prompt declination or clear path forward, defined by the underwriting questions that will get the deal done?

A good surety underwriter can be your important ally and business partner.  Choose us carefully based on performance, and always Beware the False Asker!

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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Secrets of Bonding #158: Booby Trap Bond

Steve Golia2 Comments

Booby Trap Performance Bond

“The Surety, for value received, hereby stipulates and agrees that if the Contractor has been declared in default by the Obligee, and there has been no uncontested failure, which has not been remedied or waived, of the Obligee to pay the Contractor as required under the Construction Contract: (i) The Surety shall promptly remedy the default…”

Waaaa?!  We read this over and over to understand the implications. Is this just another boring bond form, or is there a Booby Trap, an elaborate effort to gain an advantage over the surety?

Every bonding company has their own standard Performance and Payment Bond forms. We prefer to use the AIA A-312 unmodified P&P bond. It is a well balanced, widely accepted form. Whenever we receive a special bond form, we must review it carefully. Why did the obligee spend the time and money to devise it? There must be some advantage – for them.

Last week we received an obligee’s mandatory bond form on a private contract and a key phrase is stated above. Our client is the GC / prime contractor. Sometimes the unique bond forms are not too bad. Let’s pick this one apart. Maybe you’ll run into it some time.

This language is very important because it concerns the Obligee’s responsibility under the contract. In order for them to be entitled to make a performance bond claim, they must fulfill their end of the bargain, which is to PAY for the work. Is a bond claim for lack of performance reasonable if the Obligee has failed to pay the contractor? Of course not! The contractor can’t work for free. 

What are the implications of the wording in that special bond form? Let’s use the A-312 as a benchmark. (Owner means Obligee) It says:

“If there is no Owner Default under the Construction Contract, the Surety’s obligation under this bond shall arise after…” And in the definitions it goes on to say:

“Owner Default. Failure of the Owner, which has not been remedied or waived, to pay the Contractor as required under the Construction Contract or to perform and complete or comply with other material terms of the Construction Contract.”

Pretty simple. If the owner fails to pay for the work, and then makes a bond claim, the surety has an appropriate reason to deny the claim. So how does it work in the Booby Trap Bond? Instead of the convoluted lawyer talk, let’s turn it into plain English. It says…

The Obligee is not guilty of failing to pay unless:

  1. They neglect to declare the Contractor in default and,
  2. There is an unremedied or unwaived failure to pay the Contractor that the Obligee has not contested

Ugh… that last part! Assume that in every case, the Obligee will contest an allegation that they have failed. When they do, the surety has no claim defense even if the contractor has not been paid.

What a trap for the unwary bond underwriter! It would have been more fair if the bond just said “Obligee is entitled to make a bond claim even if they don’t pay for the work!” But then people would understand…

Special bond forms can be benign or Booby Trapped and our underwriters review every one.  Good underwriting protects the bonding company and the Contractor from such excessive risks!

Summary: We have a lot of underwriting talent over here. But what good is it if we don’t produce any bonds?  Well, we do!

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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Bonding Companies Are ALL The Same.

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OK, you know that’s not true.  In fact, your success may depend on knowing the differences between sureties.  Each one has a certain appetite, a niche.  We are all the same, and yet we are all different.

So here is a little bit about us.

What We Do

  • OUR GOAL is to be your high capacity market that provides fast, reasonable, (maybe even wonderful) underwriting responses!
  • Exclusively contract surety.  That means bid, performance and payment, and maintenance bonds.
  • We bond construction, including subcontracts, plus service and supply contracts.
  • Sovereign nation contracts are supported
  • Also demolition, abatement and remediation
  • We will consider young companies
  • Production Underwriters: We can support companies with less than perfect credit – even with liens and bankruptcies. We’re not shackled by “bonding company bureaucracy.”
  • We are flexible regarding financial statement presentation on bonds up to $10 million each.
  • We have our own contractors questionnaire, bond request form and WIP schedule because after doing this for forty-five years, we know what info helps get your deal done.
  • Our standard bond forms are unmodified AIA forms, readily accepted throughout the construction industry.
  • Our rates are flexible / competitive.
  • We are licensed to write in every state, including D.C., and can also consider overseas projects.
  • We respond to all new business submissions on the day received.
  • We are offering new agency appointments.  No volume commitment is required.
  • Our underwriting staff is available every day of the week, including evenings, 365. (You can call us right now! 856-304-7348)

What We Don’t Do

  • Fidelity bonds or surety other than contract.  For example, we do not support license & permit, court & probate, or site & subdivision.
  • Waste your time.  We only develop files we expect to write.

We not bragging.  We just wanted you to know.

Our strong financial position (Best rating: A-8) makes us a perfect fit on a wide range of opportunities.  Aggregate programs to $15 million and fast service.  How can we help you succeed today?

 

KIS Surety Bonds, LLC is the exclusive surety underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.  “steve@kisbonds.com” or call 856-304-7348.

Secrets of Bonding #125: When to Call It Quits

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Construction contracts can be terminated by either party under certain circumstances.  Let’s take a look at it from the Contractors point of view.

Federal contracts make it easy for the government to end a project.  The “termination for convenience” clause spells out how the project can be ended (with no fault on the part of the contractor) and provides a method of payment for the work in place. Other public and private contracts may also contain this clause.

Sometimes it is the contractor who is motivated to end the project early. In these situations, it is important to know how and when to proceed.no-work

The Disputes Clause

“The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.”

Found in federal contracts, this clause means you must continue to work when facing a dispute. This assures that the contractor doesn’t hold the project hostage while the dispute is under review. 

Other public and private contracts may include language regarding unresolvable disagreements, so it is important to…

Read the Contract

Contractors should only quit a project when they have a legal right to do so.  You need to read the contract and, with the help of your attorney, choose a course of action.

An Unresolvable Disagreements clause may allow the contractor to stop work.  An example could be engineering issues that make it impossible to proceed.

Stop Work for Nonpayment

In these cases, the contractor should send written notification of the overdue payment and allow a time period to collect the funds.  Some contracts require that a second notification be sent before work may be suspended.

Because nonpayment may be a material breach of the contract, it can justify stopping work.  However, state laws vary on this subject.  An attorney can help determine if such action is advisable.

Surety Bonds

If a Performance and Payment Bond covers the contract, it can play an important role.

General Contractors should alert their surety regarding any disputes.  They should also remember that stopping work can result in a Performance Bond claim.  This can hamper the availability of bonds for other projects. The surety will want to understand the dispute and may offer guidance to the contractor and attorney.

Subcontractors have these same issues if they have bonded their subcontract.  In addition, contracts with “pay when paid” wording may justify the GCs nonpayment – another reason to read the contract.

An advantage for subcontractors may be a P&P bond above them, filed by the general contractor.  This Payment Bond is available for claims by subs and suppliers.  It can be a powerful tool to protect subcontractors.  Even a letter to the GC threatening to file a payment claim can shake the money loose in some cases.

Conclusion

Stopping work can be an important remedy for the contractor, providing the action is legally permitted.  When a contractor considers suspending work they must weigh the risk that they may ultimately be found in breach of contract themselves.  On the other hand, the larger situation of the nonpaying party may demand action, such as an impending bankruptcy.

The best approach is to review contracts in advance and negotiate the addition of language that allows work stoppage under appropriate circumstances.  The goal is to acquire the contract while limiting the risks.

Note: we are not attorneys and are not giving legal advice.  If you have a project dispute, call your attorney for help.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety 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.

Secrets of Bonding #120: About the “T-List”

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If:  

  1. You are interested or active in Surety Bonds (bid, performance & payment, etc.), and…
  2. You think the T-list is who you are following on Twitter, then… 
  3. You need to read this article!

What is the T-List?           (Click for mood music) 

For bond producers / agents, bonding companies and bonded contractors, Circular 570 (the official document title) is the list of sureties accepted on federal projects produced annually by the federal Treasury department. It is easily found online.

What does the list provide?

In addition to the name and address of the approved bonding companies, it states the maximum acceptable amount for any one bond (based on the surety’s financial position), and where the surety has indicated it is licensed.

Is a T-listed performance and payment bond required on all federal projects?T

Generally yes, although small and emergency contracts, and some service and commodity contracts are not bonded. The feds will also accept alternatives to a bond such a “cash” deposit held by the government, and tripartite agreements (which is a form of funds administration.)

Federal contracting officers also may have the latitude to accept a non T-listed surety on larger contracts if they deem it is in the best interests of the government.

Is a T-Listed bid bond required on federal projects?

Yes, when bid security is stipulated and a bond is the chosen method of compliance.  For example, a form of cash may be allowed at this stage, then a bond could be used for performance and payment.  Another twist, some federal projects call for a “bondability letter” instead of bid security.  This indicates the sureties interest in supporting the contract, but does not include a penal sum or any form of financial penalty.

Is the T-list required on state or municipal contracts?

Circular 570 is intended to be a federal requirement, although state and municipal owners may choose to stipulate it as a means of pre-qualifying the bonding companies.

t-400

When a surety is on the list, does the federal government “back” the bonding company for the benefit of other parties?

No, it is merely the government’s internal opinion regarding the condition of the surety.  The feds make no guarantee to 3rd parties regarding the viability of the surety, or the correctness of including them on the list

Can a surety fail while enjoying “approved” status on the list?

Yup.

Are there any strong bonding companies that are not on the list?

Yes, many!  Only sureties that decide they want to be on the list are reviewed by the federal analysts.  They must submit their info and go through the process.  Some bonding companies are not intending to bond federal contracts, or may be ineligible for some reason.  They could be among the strongest sureties in the country, but would not be on the list.

Must subcontractors on federal projects use T-listed sureties?

It is not automatically required because these are considered private contracts between the general / prime contractor and the subcontractor. However, see next question…

What about private owners?

THE A-TEAM -- Pictured: Mr. T as Sgt. Bosco "B.A." Baracus -- Photo by: Herb Ball/NBCU Photo Bank
THE A-TEAM — Pictured: Mr. T

On private contracts, such as ALL subcontracts and projects with an owner that is not a public entity, the bonding requirements are at the owner’s discretion – including whether or not they even want a bond. They may demand the use of their own special bond form (some general contractors develop a subcontract bond form extra beneficial to them) and may stipulate a T-list requirement.

In some cases, the GC’s surety makes the subcontract bonding requirements.

Conclusion

In essence, always assume a Circular 570 surety is required on federal contracts.  The bond amount cannot exceed the limit stated on the list, and the bond should state the surety’s address as indicated on 570.

When other public entities require the T-list, such as state or municipal owners, it is mandatory because there is normally no flexibility in their specifications. However private owners set their own rules so subcontractors and GCs working for private owners may have the opportunity to negotiate away the T-list requirement if their viable surety is not on the federal list.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety 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.

Secrets of Bonding #118: Bonding Company = Girlfriend

Steve Golia2 Comments

I’ve been in the surety business for a long time.  As a student of the industry, I have observed the dynamics that occur between bonding companies and their clients.  My conclusion: Bonding Companies are like Girlfriends!

(My comments are written from a male point of view, but I’m sure you can flip this to be applicable if the reader is “non-male.”)

Think about relationships you’ve been in.  Don’t they always have a “love / hate” aspect? Jokes about relationships often capitalize on this reality:

Marriage is a three-ring circus. First the engagement ring, then the wedding ring, then the suffering.
– Milton Berle

My wife is a light eater … as soon as it’s light, she starts to eat. 
– Henny Youngman

“I am” is reportedly the shortest sentence in the English language. Could it be that “I do” is the longest sentence?
– George Carlin

And for the ladies:

What’s the difference between a boyfriend and a husband?
About 30 pounds.
– Cindy Garner

As very sophisticated types, we know how to deal with the technicalities of these relationships.  It isn’t always easy, but it’s worth it.   Bonding is pretty much the same!

Step One

How does a construction company gain the support of a surety?  It starts with a flirtation and then “getting to know you.”  The underwriter receives information about a bond that is needed. If there is a spark of interest, an application and financial statements are submitted. 

The construction company wants to look attractive:

  • Here is what we’ve accomplished!
  • This is how much money we’ve made!
  • We can really perform!

Think of this as the dating stage.  It is exhilarating and intense! There are probing questions and well-crafted answers.  Both parties want to achieve success and avoid failure / embarrassment. The same as in romance, the underwriter (girlfriend) will walk away if they find that the contractor (suitor) is dating other underwriters.  This is why bond producers may approach only one market at a time.  No girl wants a playboy who may be disloyal.

Ravishing Wedding Rings Clipart Also Appealing Wedding Rings Clipart Hd Pictures 4 Boostnow Wedd - ~ zxtzdb ~

Step Two

If the relationship blossoms, wedding bells may chime! They tie the knot with a pre-nuptial / general indemnity agreement that says “We’re in this together.  But hurt me and you’ll PAY.” 

Step Three

Eventually they become old married folks.  The contractor gripes that “he/she is never satisfied.”  More info, more questions, more money spent to keep the surety / spouse happy. It NEVER ends.  But the contractor needs the surety and works to keep things on track.

Is the underwriter frustrated?  Yes…  “I have to beat everything out of the contractor.  It’s like pulling teeth!” The contractor may be slow in providing the answers and info the underwriter needs to keep the bond account in healthy condition. “I thought we were in this together!”

There is an element of pain in the relationship, but both parties gain if they keep it together.

Yente  (Click for mood music) cupid

So where does the bond producer / agent fit in?  They are the dating service that brings the parties together.  They succeed by matching the contractor with the right surety.  The role as cupid continues as we shepherd the relationship forward, keeping the info flowing so bonds are available when needed.

The fact is, bonding involves more than paperwork.  It involves people, their perceptions and preferences.  The seasoned bond producer will make the match and guide the relationship forward for the benefit of all parties.  

Sureties, can’t live with them, can’t live without them.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety 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.

Secrets of Bonding #117: Mating Fun!

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Remember these from school?  I always found them slightly annoying. 

OK here we go!  Match up each one with its mate.  

1.      This surety bond has an annual term.  Plumbers and electricians need them.  The bond runs to the contractor’s municipality. Site Bond

 
2.      Surety bond accompanying a project proposal. Bond has no expiry date and usually are never cancelled. Power Of Attorney
3.      Guarantees the construction of “public improvements.” FIA Surety: 856-304-7348

 
4.      Provides project info such as costs, billings and expected profits. Work In Process Schedule
5.      Provides project info such as performance &/or claim issues, degree of completion, date of acceptance, final contract amount. Overrun
6.      Proves that the person signing the bond on behalf of the surety has the authority to do so. Pierre

 
7.      Performance bond premium charge for increased contract amount. Contract Status Inquiry Form

 
8.      Who you call for site, subdivision and contract surety bonds. Bid Bond

 
9.      Capital of South Dakota License Bond

 

 

 

 

 

Hearts

OK let’s see how you did.

  1. This is a license bond. Usually written in low amounts and freely issued.
  2. That’s a bid bond. They guarantee the bidders sincerity and interest in the project.
  3. Site bonds cover water, sewer, sidewalks, roads – not the buildings.
  4. Work In Process Schedule prepared by the construction firm using internal info only they have.
  5. Status Inquiry Form prepared by the project owner indicating the degree of acceptance of the contractors work and indicating the overall health of the project – in their opinion.
  6. Power of Attorney is attached to every surety bond proving its authenticity.
  7. Overruns may be charged when contract increases occur or at the end when the job is completed / accepted.
  8. FIA Surety expertise to solve your bond toughies. And we guarantee a same day response!  

You see, bonds CAN be fun and rewarding.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision and Contract Surety 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.

Secrets of Bonding #51: Writing Bonds to Your Uncle

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Sam, that is…

There are lots of federal bonds.  It’s a unique corner of the surety world with special requirements and mandatory bond forms.  Here is a general overview and some specific comments on Performance Bonds for federal contracts.

With so many federal forms for specific situations there’s bound to be some strange ones: Adulterated Butter Bond, Opium Smoking Bond and the Tobacco Tube Manufacturers Strengthening Bond to name a few!

The general categories are:

  • Official Bonds covering the actions of people in office
  • Immigrant Bonds covering foreign persons in the U.S.
  • Excise Bonds cover taxation
  • Customs Bonds relating to import and export

In addition to all the various small bonds, there are the Performance and Payment Bonds which often are for millions of dollars covering contracts for construction and services. Let’s talk about these.

For construction, the federal forms are Bid Bond #24, Performance Bond #25 and Payment Bond #25A.

Some unique aspects to note:

  • If issued by a corporate surety, they must appear on the current version of Circular 570 (T-List) for an amount sufficient to cover the bond in question.  You can refer to the current list here: http://www.fms.treas.gov/c570/c570.html
  • The use of 24, 25 and 25A is mandatory on contracts offered directly by a branch of the federal government. Projects that include federal funding, but are offered by a local non-federal entity, are governed by whatever bonding requirements they designate.
  • On Bid Bonds, the “Date Bond Executed” and “Bid Date” are not required to be identical, but the execution date cannot be after the bid date.
  • Federal bids bonds are normally for 20% of the proposal amount.
  • On the #24 Bid Bond, it is not necessary to fill in a dollar amount for the penal sum of the bid bond – as long as the Percent of Bid Price (such as 20%) has been indicated.  It is also not necessary or correct for the surety to indicate their T-List limit in the Penal Sum area or in the signing area “Surety A.”  The correct dollar amount of responsibility is automatically calculated based on the proposed contract amount.  Entering a dollar figure is only necessary if the surety wishes to cap the bid bond amount by setting a maximum value.  (Refer to Secret #8.  Call if you don’t have it. (856) 304-7348.
  • On 25 and 25A, it is not necessary to enter a dollar amount in the signing area “Surety A” unless there is a co-surety on the bond.  Liability Limit in the Surety A section is not asking for the T-list amount.
  • Federal bonds are always made out to the United States of America.  They do not name the actual governmental agency.
  • In the current edition, the nature of the work is listed on the Bid Bond, but not on the Performance or Payment Bond.  Only the contract number is indicated.
  • You can download the current edition of these Standard Forms here: http://www.gsa.gov/portal/forms/type/SF  That’s important because a bond can be rejected by the C.O. if an obsolete version of SFs are used.
  • In the current edition (2004), the form 24 Bid Bond says “Pervious edition is usable.”  Which, despite the poor spelling, means older versions are OK, same with the form 25A Payment bond.  Be sure to always read the printed details on the form which indicate the expiration date and other important facts.
  • Another “Ooops!” from Uncle: There is no typable field provided on the form to enter a bond number.  You need to do this manually. “Perviously” the form was not even typable.  Small steps!

There you have it.  Federal Bond forms are different, but that doesn’t mean we can’t still be friends.

Readers please note: These posts are for your entertainment and enjoyment.  We do not assume responsibility for your correct execution of bonds, nor are we responsible to any third parties.

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.

(Don’t miss our next exciting article.  Click the “Follow” button at the top right.)

Secrets of Bonding #29: When Federal Contracts Are Not

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In bonding, like insurance, we are always careful to review specifications and requirements when bonding a new contract.  The specs will state if a bond is required, the amount, and other relevant aspects such as acceptable credentials for the surety, and the bond form.

When it comes to contract documents, it is immediately evident if a project is federal. The solicitation or award letter will identify it as such, and an entity like the Army Corps of Engineers, will be named. It would be clear that the Federal Acquisition Regulations (FAR) apply and that you must have a 100% P&P bond on the federal bond form, issued by an acceptable T-Listed Corporate Surety.

So what are the bonding requirements on federally funded contracts? An example would be a local housing association project that has state and federal grant money. Is that a federal contract?  Do all the federal bonding requirements apply?

For the answer, we must review the solicitation or award and determine who is offering the work. A local housing association contract is just that – a local project, not federal. This is an important distinction because, at least partially, it answers the question about the bonding requirements.

  • True federal projects must follow the FAR. http://www.acquisition.gov/far/
  • Local or private contracts may follow aspects of the FAR if the obligee so choses, however it is voluntary.

This is an important distinction for agents to appreciate because it determines which sureties can be called upon to issue the bond.

For Federal, Corporate Sureties that appear on Circular 570 (the T-List) may be acceptable.

On non-federal projects, such as local contracts that include federal funding, the specs may vary – so no assumptions can be made. Chances are they will differ from the federal guidelines.  Only a review of the documents will reveal the answer.

Non-federal contracts can be local public work, such as a state or municipal job, or they could be private. Private contracts are all unique and as a long established surety, we have bonded many of them.  We have the flexibility to support a wide variety of special bond forms and other challenging aspects such as dual obligee riders that name lenders.  For more info about bonding private contracts, review Secret #18.

Summary:

So when are federal contracts not?

You now know merely having federal funds does not make the contract “federal.”  It is only required to follow the FAR if offered by a direct branch of the federal government.

For non-federal contracts, you will not know the bonding requirements until you review the written requirements – and there is no predicting what you may find.

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.

(Don’t miss our next exciting article.  Click the “Follow” button at the top right.)