Contact Us

Blog

legislation

Construction Performance Bond Surety Relieved of Liability Because Bond Owner Did Not Provide Timely Notice of Default

Blog, Court, Repost / /

A recent decision from the D.C. Circuit Court of Appeals provides notice to construction performance bond owners and sureties that a bond owner may forfeit its rights under a bond if timely notice of default is not provided to the surety. See Western Surety Company v. U.S. Engineering Construction, LLC, — F.3d —, 2020 WL 1684040 (April 7, 2020)  In this case, the appellate court affirmed a district court’s summary judgment decision dismissing claims against a surety under a construction performance bond because the surety had not received timely notice of a default and therefore was prejudiced by its inability to have an opportunity to cure the default.   Subcontractor U.S. Engineering Construction, LLC (“U.S. Engineering”) contracted with sub-subcontractor United Sheet Metal for sheet metal work relating to the construction of a new South African embassy in Washington, D.C.  U.S. Engineering paid the premiums for a construction performance bond from Western Surety Company to ensure completion of United Sheet Metal’s work.  The parties entered into an AIA A312-2010 contract for the performance bond, which included a requirement under Section 3 for U.S. Engineering to provide Western Surety with notice if it considered declaring United Sheet Metal in default.  The bond did not explicitly state the required timing for such notice. United Sheet Metal failed to perform under its contract and U.S. Engineering terminated its subcontract with United Sheet Metal without any prior notice to Western Surety.  In fact, U.S. Engineering waited more than eight months after terminating United Sheet Metal before notifying Western Surety of the default, which notification only occurred when it filed a notice of claim against the bond. The district court granted Western Surety’s motion for summary judgment on the basis that timely notice was not provided under the bond.  In affirming that decision, the appellate court determined that U.S. Engineer’s delay precluded a claim under the bond.  Western Surety was harmed by the delay because “[b]y unilaterally completing United Sheet Metal’s remaining contractual obligations before notifying Western Surety, U.S. Engineering deprived Western Surety of its contractually agreed-upon opportunity to participate in remedying United Sheet Metal’s default.”  The appellate court concluded that, “because the bond expressly provides the surety with the opportunity to participate in curing the subcontractor’s default, we hold that it is a condition precedent to the surety’s obligations under the bond that the owner must provide timely notice to the surety of any default and termination before it elects to remedy that default on its own terms.” This case serves as a reminder for construction companies and sureties to review and follow the terms of a bond before taking any actions to enforce it, and that timely notice may be required in order to give the surety an opportunity to cure the default, even if not the bond does not explicitly state a deadline for such notice.

Construction Performance Bond Surety Relieved of Liability Because Bond Owner Did Not Provide Timely Notice of Default Read More »

Wet Ink Signatures Requirements May Fade After Coronavirus

Blog, Legislation, Market, News, Repost, Standards, Surety / /

pril 10, 2020, 4:56 AM; Updated: April 10, 2020, 10:34 AMListen In-person signatures were on decline pre-virus Global pandemic has accelerated use of eSignatures, expert says Gabe Teninbaum was stuck in a precarious situation when he had to close on his mortgage refinance on March 24. At this point, states were in lockdown due to the coronavirus outbreak. Teninbaum, who is director of the Institute on Law Practice Technology & Innovation at Suffolk University Law School in Boston, said he called his bank to ask whether the transaction could be done electronically, but “the short answer was no.” The bank said Teninbaum could not delay the closing while keeping his refinancing rate, so he felt he had to act. Teninbaum drove with his wife and young children to the bank’s law firm. His family waited in the car while he went in to sign. The office was empty except for the attorneys involved, he recalled. They wore blue surgical gloves and “cloroxed everything.” After he signed about 50 documents, he went to the car and it was his wife’s turn. The wet signature requirement, that a document be signed in-person and with ink, could see its demise as social distancing practices take hold across the globe in an effort to stop the spread of coronavirus. Covid-19, as the disease caused by the virus is known, has accelerated the already growing use and acceptance of electronic signatures to such an extent that wet signatures may soon become relics for attorneys. We’re “clearly at an inflection point” and “there will be no turning back,” said Margo H.K. Tank, the co-chair of DLA Piper’s U.S. financial services sector practice in Washington. Rise of eSignatures Since two pieces of legislation—the Uniform Electronic Transactions Act in 1999 and the Electronic Signatures in Global and National Commerce Act in 2000—were enacted, the use of eSignatures has steadily made inroads into almost every type of consumer and commercial transaction, like signing on pads when shopping at the grocery store or pharmacy. Forty-eight states, plus Washington, D.C., Puerto Rico, and the U.S. Virgin Islands have adopted some form of the UETA, Tank said. New York and Illinois have their own electronic signature law, she added. The ESIGN Act was enacted to make sure the states didn’t vary from uniformity in their adoption of UETA, she explained, calling it a “federal backstop” to UETA. Both are procedural laws saying if a document requires a signature, the signatories can use eSignatures because they have the same legal status as ink signatures, Tank said. Electronic signatures are used roughly equally in consumer and commercial transactions, Tank said. And lawyers who “understand the law underpinning their use,” are also “eager” to use them, she said. However, there are certain legal transactions not within ESIGN’s scope that are still done in person, including wills, testamentary trusts, adoptions, and divorces, Tank said. But states can and have enacted their own laws to enable eSignatures in such matters. Tank said the question right now is how lawyers and clients can do business in the current climate if they can’t e-sign. She pointed to the example of online notarization, which has been “exploding” in the wake of the virus. Before coronavirus, 23 states allowed remote online notarization. Now, at least 19 states have enacted emergency, short-term measures to enable RON. Legal Implications Lawyers have to follow the law when wet signatures are required, even though it may expose them and others to the coronavirus. The insistence on wet signatures on documents “is causing all kinds of distancing issues for lawyers doing closings,” Lucian T. Pera said in an email. Pera is an attorney with Adams & Reese in Memphis whose practice includes legal ethics. These are often very important transactions involving real estate where courts have historically been difficult about any deviations from the traditional or required elements, Pera said. For example, for an affirmation with a formula that requires the signature in the presence of the notary, there “may be no legitimate substitute for the notary and signer being in the same physical space, even if 6 feet apart,” he said. “My sense is that some lawyers are simply doing this in person, even under a shelter-in-place order,” Pera added. The benefits of using eSignatures instead of wet signatures in the age of Covid-19 “far outweigh the negatives,” said Connor Jackson. Jackson is a founding partner of the national healthcare firm Jackson LLP whose practice focuses on regulatory compliance in telemedicine. He is based in Evanston, Ill. But there are some things to be cognizant of, including authenticity, he said. “It’s crucial to confirm that the email address being used for obtaining the e-signature is unique and private to the signer,” Jackson said. If it’s not, then authenticity can’t be verified beyond confirming that someone with access to that email address signed the document, he explained. If an entire family uses the email address [email protected], for example, and Jane Doe is trying to digitally and securely sign something, “most programs would technically permit anyone with access to that email account to assert that they’re Jane and to execute the document on her behalf,” Jackson said. Reflecting on his closing experience, Teninbaum said he doesn’t see economic benefits to requiring wet signatures. For the firms, offices aren’t necessary and they can save copying and related costs, he said. For the consumer, they can save time and money by avoiding travel. Teninbaum said wet signatures remain a common practice, like a lot of legal practice processes, simply because of inertia. “The more I thought about it, the situation was emblematic of everything that’s broken with the legal system,” Teninbaum said. “If we just paused and evaluated the way we work in light of new tools and technologies, situations like this one wouldn’t occur anymore.” https://news.bloomberglaw.com/tech-and-telecom-law/wet-ink-signatures-requirements-may-fade-after-coronavirus

Wet Ink Signatures Requirements May Fade After Coronavirus Read More »

Surety bond at issue in Merchants Greene contractor’s bankruptcy [CNA]

Blog, Claims, Market, Repost, Surety / /

The cessation of operations at Trent-Wyatt Contracting, a Jefferson City-based company that had a large erosion-control contract at the Merchants Greene development in Morristown, has created a complicated legal wrangle involving city government and Western Surety, Trent-Wyatt’s former bonding company, officials say. Trent-Wyatt obtained a bond through Western Surety that guaranteed erosion-control work, including a piping system and catch basins to convey runoff to a retention pond, would be completed. If Trent-Wyatt didn’t perform the work, Western Surety would be on the hook for construction costs. On June 5, 2019, however, Western gave a 30-day notice it was terminating its liability under the erosion-control bond, according to Morristown City Attorney Lauren Carroll. That date is important because it’s 29 days after one of Trent-Wyatt’s owners, Kevin L. Trent, filed for personal Chapter 7, or liquidation, bankruptcy. The other company owner, Gary W. Wyatt, filed for personal Chapter 7 bankruptcy on July 11. Both Trent and Wyatt estimated their liabilities range from $10 million to $50 million, according to their bankruptcy filings. Western Surety was released from the erosion-control about nine months ago. What complicates matters, Carroll says, is calculating how much work remained when Western Surety was released from the bond. Carroll and Michael Poteet, Morristown stormwater coordinator, estimate it will cost approximately $750,000, and that’s the amount Carroll is seeking to recover from Western. On Thursday, Carroll declined to identify how much Western Surety is willing to pay, but the city attorney did say it was “substantially less” than $750,000. Morristown real estate developer Shannon Greene, one of the developers of the Merchants Greene property in West Morristown, said Thursday the dispute between Morristown government and Western Surety has “nothing to do with him.” That’s partially correct, Carroll says. The city attorney says that while legal action is a possibility, she’s trying to negotiate a mutually acceptable settlement with Western to finish the erosion-control work. The Greene family owns the property, and ultimately is responsible for installing the stormwater system specified in the plans, according to the city attorney. Greene says it’s too early to install drainage pipes because the location of the stormwater system will be dictated by future tenants. It makes no sense, Greene says, to lay underground pipes that could run beneath a restaurant, hotel or other business. Similarly, spreading topsoil and seeding it with grass isn’t smart if it’s going to be removed in the foreseeable future, Greene says. However the erosion-control bond conflict is settled, Morristown city government and Greene are compelled to work together on other development-related matters in the future, Carroll says. Part of the tax-increment financing arrangement the Greene’s received when they began the development required them to put up a traffic signal at the intersection of West Andrew Johnson Highway and Howell Road. The proposed deadline is in the fall. Greene says it’s too early to install a traffic light. He says it makes more sense to spend the money when the road linking Merchants Green and Exit 4 of Interstate 81 is complete. That’s when he anticipates interest in Merchants Greene will dramatically increase. He says Merchants Greene has created approximately 800 new jobs, and he would appreciate a little flexibility from city government in trying economic times that have been disastrous for prospective buyers. “Nobody thought the economy would fall like this,” Greene said. The developer says that if he were to move immediately to order traffic signals, there’s no guarantee they would arrive by fall. He says the overwhelming majority of traffic light components are manufactured in China. https://www.citizentribune.com/news/local/surety-bond-at-issue-in-merchants-greene-contractor-s-bankruptcy/article_6984c51a-7b48-11ea-bbf0-a36e9321d2b3.html

Surety bond at issue in Merchants Greene contractor’s bankruptcy [CNA] Read More »

The Importance of Reviewing and Complying with Performance Bonds

Blog, Repost, Uncategorized / /

As we continue to cope with the economic impacts of the COVID-19 pandemic, it is important for participants in the construction industry to take affirmative actions to protect your investments in current and planned construction projects.  One of the ways owners and contractors can protect themselves is by ensuring that you understand how to enforce any performance bonds that you have required for your projects.  Performance bonds are intended to act as a guarantee that performance, as required by the relevant construction contract, will be completed.  Generally, it is the owner of the construction project who requires its general contractor to acquire a performance bond as assurance and protection against default by the general contractor under the prime contract.  It is also possible, and common on large projects, for a general contractor to require its subcontractors to obtain performance bonds.  There are three parties to performance bonds in the construction context: the “obligee,” which is the entity who is owed the contract performance and who is protected by the bond; the “contractor,” who owes obligations to the obligee to complete its contract work in accordance with the contract requirements; and the “surety,” generally an insurance company that engages in the practice of suretyship, that agrees in the case of contractor default to complete the work of the contractor, pay others to complete the work of the contractor, or pay the obligee the amount of the performance bond.  In North Carolina, performance bonds are mandatory on public projects that exceed $300,000.00 in cost for a local governmental project, or which exceed $500,000 in cost for a State department or agency project.  Additionally, they are sometimes required by the owners of private commercial construction projects.  In fact, due to the negative economic impact of the current coronavirus pandemic, we can expect the frequency with which performance bonds will be required on commercial construction projects to increase.  Performance bonds are paired with payment bonds on government projects and are almost always paired with payment bonds on private projects.  When paired together, these bonds are commonly referred to as “P&P” bonds.  Payment bonds are distinguishable from performance bonds in that they are intended to protect lower-tier contractors from the threat of non-payment by the general contractor or the contractor above them in the construction chain.  This article focuses on performance bonds, but a future Ward and Smith article will cover payment bonds. Critically, while a performance bond is intended to guarantee contract performance in accordance with contract terms, it can be rendered void and useless if the obligee fails to comply with any requirements contained in the bond.  Thus, it critical for construction project owners and general contractors to read your performance bonds carefully to ensure that you do not take actions (or fail to take actions), which might negate your rights and protections under your bonds.  Performance bonds are treated and interpreted as contracts and can be breached and enforced like contracts.  If there is a contractor default, the terms of the bond will lay out any actions that are required of the obligee before the surety’s obligations to correct the contractor’s default arise.  Additionally, the terms of the bond set out the surety’s liability and provide the actions it may take in responding to a contractor default.  Notably, many performance bonds contain provisions that require the obligee to provide the surety with notice of the contractor’s default before the surety’s obligations to cure the contractor’s default under the bond arises.  As an example, the form AIA 312-2010 performance bond requires the obligee to do at least the following before the surety’s obligations under the bond arise: (1) declare the contractor in default, terminate the contract, and notify the surety that such actions have been taken; and (2) to agree to pay the balance of the contract price in accordance with the contract terms to the surety or to a replacement contractor the surety selects.  In some instances, the surety must also provide the contractor and the surety notice when it is considering declaring the contractor to be in default, in which case the surety can request a conference with all parties to the bond in an effort to reach a resolution which allows the contractor to correct and continue its performance of the contract. Only after complying with these notice requirements, does the surety’s obligations under that performance bond arise.  Upon receipt of proper notice in conformance with the terms of the bond, the surety’s obligations become due, and it can elect one of multiple courses of action to correct the contractor’s default.  The surety can either: attempt (with the consent of the obligee) to arrange for the original contractor to cure the default; undertake to complete the contract work itself; obtain bids or negotiate proposals from qualified contractors to complete the contract work; waive its right to complete or arrange for completion of the work and agree to pay the obligee the costs it incurs to complete; or deny liability and state the basis for denial. If the surety fails to perform its obligations in a reasonable time, the form AIA 312-2010 performance bond requires the obligee to provide additional notice to the surety demanding that the surety perform its obligations under the performance bond before the surety will be deemed to be in default with respect to the surety’s obligations under the bond.  While not all performance bonds are as demanding of the obligee as the AIA 312-2010, it provides a good example of requirements that might be contained in your bond, which, if not complied with, could result in a loss of your rights under the bond.  North Carolina case law does not directly address the consequences of an obligee failing to provide notice as required by a performance bond, but numerous cases from the federal courts and other state jurisdictions have made clear that such a failure constitutes a material breach of the performance bond and excuses the surety from its obligations under the bond.  This is because the purpose

The Importance of Reviewing and Complying with Performance Bonds Read More »

Douglas County warned activist group of $3 million surety bond if it filed lawsuit challenging jail expansion

Blog, Claims, Market, Repost, Surety / /

Prior to local activist group Justice Matters filing a lawsuit last month against Douglas County’s plan to expand its jail, an attorney for the county warned that he would pursue a $3 million surety bond from the group if it went through with the lawsuit. In response, William Skepnek, an attorney representing Justice Matters, wrote a letter calling the county’s tactic one of “edict, threat and condescension.” If a court were to go along with the county’s request for a surety bond, it basically would mean that Justice Matters would have to purchase the equivalent of a $3 million insurance policy before the case could continue. Often, a surety bond also requires a business or organization to pledge its own assets if the bonding company must make a payment on the claim. In this case, the county would be seeking the bond to repay the county for costs associated with the lawsuit and to help cover any added construction costs for the jail that a lawsuit may cause. On Monday, John Bullock, the county’s attorney, disagreed with Skepnek’s characterization. He said in an email to the Journal-World that pursuing a surety bond was appropriate because Justice Matters was seeking an injunction on the county’s plans to expand the jail. If an injunction is granted, the project could be delayed and result in higher construction costs and higher interest rates on the bond market, among other increased expenses, he said. “When a party in litigation seeks an injunction, the court can require a security bond to protect the other party against losses caused by the suit,” Bullock said in an email to the Journal-World. “The county’s exercise of this statutory right is not a ‘threat,’ but a necessary measure to protect the taxpayers from significant losses expected to result from Justice Matters’ suit seeking injunctive relief.” The Journal-World reached out to the three Douglas County commissioners for comment on Bullock’s pursuit of a surety bond, but they did not immediately respond. Joanna Harader, a member of Justice Matters, recently provided the letters to the Journal-World at a reporter’s request. The three-letter correspondence between Skepnek and Bullock highlights their differing views on whether Douglas County has the legal authority to expand its jail without a new public vote. Before filing the lawsuit, Skepnek sent a letter to Bullock on Feb. 15 explaining that Justice Matters had retained him and James Kaup for legal representation and explained the group’s opposition to the expansion of the jail. He said the group had requested to send the letter and explain the reasons for its opposition in an effort to be transparent. “Among those reasons is that we believe the Douglas County Commission lacks the authority to issue the proposed bonds without first either submitting the matter to a vote, or alternatively publishing notice of its intent to issue, enabling voters to petition to place the issue on the ballot,” Skepnek wrote. In a response, dated March 5, Bullock noted the county’s previously stated rationale for the expansion without a new vote: a 1994 sales tax referendum, which created a 1-cent sales tax “for general government purposes, including the issuance of sales tax revenue and general obligation bonds, and also including … The Expansion and operations of the county jail.” Bullock said that gave the county the authority to issue bonds without voters signing off. However, if Justice Matters went through with the lawsuit, he said the county would seek the dismissal of the lawsuit on “various legal grounds.” He also said the county would pursue a surety bond from Justice Matters “to protect the taxpayers against the costs the county will suffer on account of your client’s lawsuit.” Bullock said the surety bond, which would need to be approved by the court, would be “not less than $3 million.” “We urge your clients to reconsider their plans to use litigation to advance their agenda,” Bullock said in the letter. In a second letter to the county, dated March 6, Skepnek said he was disappointed in the county’s response. He also said he and Justice Matters did not believe the court would approve such a surety bond in its challenge to the county’s legal authority to expand the jail. He, again, asked the county to consider a new public vote on the expansion of the jail. “If the citizenry of Douglas County want a jail expansion it will surely be authorized by the voters in a public contest,” Skepnek said. Justice Matters filed its lawsuit in Douglas County District Court on March 16, making the same argument that Douglas County commissioners are not allowing residents to vote or petition against the plan to fund an expansion of jail, despite the group’s belief that they have an obligation to do so under state law. Karrey Britt, a spokeswoman for the county, said the county planned to file a response to the lawsuit on Tuesday. The lawsuit is a culmination of a yearslong effort by the group and others to stop the county from expanding the jail to house more inmates. As the Journal-World has reported, county leaders say that the jail is overcrowded, making it unsafe for both staff and inmates; opponents argue that the county needs to try more alternatives to incarceration to lower the jail’s population. Two local nonprofit organizations, Justice Matters and the Lawrence Sunset Alliance, along with five individuals who reside within the county, are petitioning for an injunction to stop the county from issuing bonds to fund the planned expansion, estimated to cost roughly $29.6 million, plus a separate estimated $1.5 million renovation of the jail’s central heating and cooling plant. The county had approximately $9 million on hand to go toward the jail, the Journal-World has reported. County staff planned to pursue a bond issue with a 20-year debt service to finance the rest of the estimated $31.1 million total, which is about $22.1 million. https://www2.ljworld.com/news/county-government/2020/apr/06/douglas-county-warned-activist-group-of-3-million-surety-bond-if-it-filed-lawsuit-challenging-jail-expansion/

Douglas County warned activist group of $3 million surety bond if it filed lawsuit challenging jail expansion Read More »

Trisura issues coronavirus advisory for contractors

Blog, Repost / /

To aid brokers in guiding their contractor clients through the pandemic, Trisura Guarantee Insurance has issued an advisory with helpful suggestions and reminders. The advisory, authored by Trisura vice-president of surety and warranty claims Stuart Detsky, was posted on the company’s official blog. Contractors should contact all of their employees, sub-contractors, and suppliers, the advisory suggests. This will give contractors an opportunity to discuss and determine how each will be modifying their workflow in response to COVID-19. Contractors should be asking sub-contractors questions – such as whether there will be any remote work arrangements, or how essential travel would be for the project – in order to gauge their ability to perform their sub-contracts. Contractors should also ask if suppliers are able to make deliveries as scheduled. After determining the capabilities of their employees, sub-contractors, and suppliers, contractors should then update their projects’ schedules as needed. These schedules need to be as realistic as possible, Detsky said, and contractors should maintain buffers in case of any unforeseen developments. These revised schedules must be relayed to all relevant parties, including owners and their consultants, to ensure everyone is on the same page. Trisura added that contractors should review the construction contracts, since they can be inconsistent in terms of how they deal with schedule changes and delays. Most contracts will require contractors to provide timely notice to the owner in the event of delays. Force majeure clauses (provisions in the contract which provide for time extensions due to factors beyond the contractor’s control) can also be inconsistent in wording and applicability. Many contracts do not contain a force majeure clause, and even those that do may not have language that would be triggered by an event such as the COVID-19 outbreak. Contractors should not be afraid to rely on advisors, Detsky noted. Most construction lawyers have been writing articles, reviewing contracts and preparing action plans for their clients due to COVID-19. Because of these difficult and confusing times, contractors should utilize their lawyers – or retain one if they haven’t already. https://www.insurancebusinessmag.com/ca/news/construction/trisura-issues-coronavirus-advisory-for-contractors-218832.aspx

Trisura issues coronavirus advisory for contractors Read More »

The Intertwined Business Worlds of Construction & Surety: Can the Surety Industry Weather the COVID-19 Storm?

Blog, Market, Repost, Surety / /

Before the COVID-19 pandemic spread, construction in the U.S. was booming. Backlogs were deep and project funding was easily accessible. Back before we knew the term COVID-19, the “crisis” in the construction industry was the labor shortage, an aging generation of skilled tradesmen, or the nation’s infrastructure. No one could have ever envisioned that in just a few weeks’ time, those problems would pale in comparison to something far worse – a zoonotic disease that is wreaking havoc on almost every ongoing construction project in the nation. As our clients know, the surety and construction worlds are inextricably linked. When the construction sector is booming and economic times are prosperous, surety companies see very few claims. They collect premiums and are largely profitable in their zero-loss ratio approach to bonding, meaning their business model is that they expect to incur no losses. Conversely, when there is a downturn in the economic market, there is a corresponding uptick in performance and payment bond claims. Fast forward to the unfortunate and unimaginable present. The President of the United States declared a national emergency on March 13, 2020. Most states have declared a state of emergency, and many states and some local governments have issued shelter-in-place (or stay-in-place) orders, restricting businesses and citizens from all but essential functions. Some orders exempt construction from the ban by defining them as “essential,” but many are unclear or only permit certain kinds of work to continue. Regardless, the restrictions are impacting construction jobsites, either because parties are unsure if they can continue or specific leave or “hall passes” for workers are required to proceed. [Read about the magnitude and genesis of the anticipated delays due to COVID-19 at Smith Currie Client Alert on COVID-19 Delays]. In addition, for some projects and trades, materials such as masks and gloves required for normal construction operations, are also critically needed by hospitals and health care workers fighting COVID-19. This unanticipated market demand is creating material shortages which threaten the viability of ongoing projects. Restrictions on operations across the world have hindered production, acquisition and transport of other materials, driving up prices or slowing job progress. Finally, the advent of the pandemic has created personal safety issues for workers and jobsites which can result in substantial project slow-downs or even wholesale shuttering of projects. All of these scenarios yield to the unmistakable conclusion that bond claims will increase exponentially over the next year, given the COVID-19 impacts on construction projects around the country. Bond Claims Related to Coronavirus Project Delays or Nonpayment As the impacts are being felt and local and state governments are issuing orders rapidly, sureties and their contractors are racing to read the fine print of their contracts. The following clauses or provisions are likely to govern most of the delays relating to COVID-19: force majeure and/or comparable excusable delays; suspension of work or work stoppage; terminations; change in law; material escalation; safety/health requirements; protection of work; notice requirements; and claims or changes clauses granting equitable relief. Standard form bonds do not address work stoppage, delays, acts of God, or any of the above clauses. They simply incorporate the contract or subcontract they stand behind and set forth procedural notice requirements to pursue claims. As such, it is imperative for sureties, obligees, principals, and bond claimants to carefully assess legal directives concerning jobsite delays or shutdowns, ensure proper notice is given of delays, productivity losses, jobsite shutdowns, and nonpayment, and keep meticulous, detailed records of all costs incurred as a result of COVID-19 impacts. For example, some contract provisions include pandemics as a defined force majeure or a cause of excusable delay, but many others do not. Thus, there is a fair amount of uncertainty whether the bond principal and its surety have a legal excuse for work delays or other impacts from a pandemic such as COVID-19, or the right to additional time or compensation. Regarding future bond claims, contractors will have a difficult burden proving delays on a bond claim if a contractor is keeping an omnibus cost code for “COVID-19,” without breaking out and segregating the specifics of what labor and material is being charged to that cost code. On federal jobs, pursuing schedule relief or compensation for delays rests solely in the Contracting Officer’s acknowledgement of, and agreement to, a change or delay. Because only the Contracting Officer (CO) has authority to change contract terms, a writing from the CO agreeing to delay/changes is the best form of proof a principal can furnish. Sureties will likewise require this documentation before paying out on a claim. Additionally, contractors should seek a contractual modification incorporating new department/agency guidance. Contract modifications should be used to document any deviations from the contracting regulations that contain certain types of relief for contractors impacted by COVID-19. While authoritative, the regulatory language can be general and may not be precisely tailored to the contractor’s situation. As such, sureties may assert defenses to the extent the obligations of the contractor are not clearly spelled out. Surety defense to performance or payment bond claims One surety defense that will be especially lethal with COVID-19 payment and performance bond claims is failure to give proper notice. Claimants will face unique difficulties in ascertaining deadlines for notice requirements, given that “project completion” or “date work last performed” may be in flux as noted above with lack of clarity with governmental orders, and jobsites shutting down multiple times due to infected jobsite workers. Some projects have been halted, but may not commence in earnest again. With the economic downturn, project funding may be pulled and for projects that do not start back up, potential claimants will unknowingly miss their 90-day bond notice requirements, unaware that the clock began to run when a project was initially shut down. Likewise, most jurisdictions have not tolled the statute of limitations on filing lawsuits, but some have. Contractors must be astutely aware of payment bond claim deadlines, as sureties will not be bound to pay any claims that are

The Intertwined Business Worlds of Construction & Surety: Can the Surety Industry Weather the COVID-19 Storm? Read More »

Social Distancing, Shelter Orders Impede Construction Bonds

Blog, Legislation, Market, News, Repost, Standards, Surety / /

The surety industry is asking federal, state and local officials to take emergency action to update decades-old surety rules requiring stamped notarizations and ink signatures that the Covid-19 pandemic has made impossible or more difficult while social distancing and shelter rules are in place. The industry seeks permission to use electronic signatures without notarization of bond documents. Otherwise, the sureties and bond producers claim, the interruption in the normal issuance of sureties required for most public works and many private projects, could hold up construction projects—and inflict further injury on the economy. Latest Updates on the Coronavirus Pandemic The Surety and Fidelity Association of America, the trade association of sureties, and the National Association of Surety Bond Producers, representing brokers and agents, are asking government officials to act quickly. “Pandemic shelter-in-place requirements,” the two associations said in a joint statement, “make traditional signatures and notary requirements unworkable.” In a letter to Congressional leaders, the two associations pointed out that many federal agencies require surety documents to have “wet ink signatures” on surety bonds and embossed corporate seals on original, printed documents. Stay-at-home orders and adherence to health directives and guidelines make it virtually impossible for bond producers, acting as attorneys-in-fact for surety companies, and their contractor or commercial business clients to sign the surety documents in person.” Unlike other federal agencies, the General Services Administration does accept electronic digital signature technology. An Office of Management and Budget memo issued last month encouraged streamlining of approval processes for critical services. Remote online notarization isn’t a workable alternative, the associations argue, because it has not been approved in many states or become widely used. Where it is approved, it requires prior certification of the notary. “A majority of these construction surety bonds are required for infrastructure projects directly related to health, safety and the growth of our economy,” says SFAA chief executive Lee Covington. “It is imperative to adopt a solution immediately for work on these critical projects to begin and continue, while maintaining important protections for small business construction firms, workers and taxpayers.” Commercial surety bonds are used in other occupations. For example, utility bonds ensure that utilities will be paid on time, license and permit bonds guarantee that regulations and rules are observed and public official bonds provide security in case a public official violates the public trust in handling money or private information. To some extent, says NASBP chief executive Mark McCallum, “Commercial surety is further ahead than contract surety because some commercial surety is more transactional in nature, where the same transaction is performed over and over with more volume.” One of the most recent examples of moving a commercial surety type into an electronic system, adds McCallum, was a result of the mortgage and financial crisis of 2008 and 2009. An electronic system set up for those bonds has been adopted in many states. https://www.enr.com/articles/49104-social-distancing-shelter-orders-impede-construction-bonds

Social Distancing, Shelter Orders Impede Construction Bonds Read More »

Coalition Letter to President Trump on Essential Infrastructure

Blog, Market, News, Repost, Surety / /

April 6, 2020 The PresidentThe White HouseWashington, DC 20500 Dear Mr. President: We, the undersigned trade and professional organizations representing tens of thousands of firms and individuals engaged in architecture, engineering, surveying and mapping, prime contracting, subcontracting, specialty trade contracting, supplying, construction and program management and surety bond production would like to join with the many other organizations in urging further guidance to clarify “essential Infrastructure” and “essential businesses and services.” As the nation and your Administration contend with the real threats presented by COVID-19, we want to encourage the issuance of exemptions for operations and maintenance of “essential infrastructure” that allows individuals to provide such services that are impossible to perform from home. Such infrastructure should include essential design, construction and related services of public works, including airport operations, roads and highways, public transportation, energy, and of critical importance today, expanding, retrofitting, and rehabilitating structures to meet healthcare and other systems and facilities related COVID-19 production needs. This work is essential to our nation’s ability to deliver what is needed during this emergency. These include medical services and supplies, food, and daily necessary goods to the American people. The current version of DHS guidance, Identification of Essential Critical Infrastructure Workers, continues to have ambiguities that require clarification. We respectfully urge the broadest definition of the services, occupations, and projects our organizations represent so that we serve our fellow citizens, operate in a safe manner in accordance with CDC and other relevant protocols, contribute to the effort to combat COVID-19, and sustain our economy in these difficult times. We look forward to working with you and your Administration so the various related industries we represent can continue our work of providing necessary construction and related services to the nation and doing our part to see us through this pandemic. Sincerely, American Council of Engineering CompaniesAmerican Society of Civil EngineersAmerican Subcontractors AssociationAssociated General Contractors of America​Construction Management Association of AmericaCouncil on Federal Procurement of Architectural and Engineering ServicesDesign-Build Institute of AmericaGeospatial Equipment and Technology InstituteIndependent Electrical Contractors​International Institute of Building Enclosure ConsultantsNational Association of Surety Bond ProducersNational Electrical Contractors AssociationNational Society of Professional SurveyorsSheet Metal and Air Conditioning Contractors National AssociationSubsurface Utility Engineering AssociationSurety & Fidelity Association of AmericaU.S. Geospatial Executives OrganizationWomen Construction Owners & Executives

Coalition Letter to President Trump on Essential Infrastructure Read More »

QBE backs down on trade credit controversy

Blog, Clients, Market, News, Repost / /

Insurance giant QBE has made a dramatic U-turn on its sudden decision to withdraw from the trade credit insurance market following major pushback from the construction industry and the federal opposition. On Saturday QBE told customers it would no longer provide trade credit insurance for businesses with a limit of less than $US250,000 ($410,000), in an effort to protect itself from the fallout from the coronavirus crisis. That meant suppliers selling on credit products worth up to $410,000 would not be insured in the event that some customers failed to make the payment. Many suppliers cannot afford to sell on credit without trade credit insurance. But following a flood of complaints and media scrutiny, including in The Australian Financial Review, and amid warnings that the move could bring much of the construction industry to a screeching halt, QBE said it would reinstate around 7000 of the 9000 blacklisted companies. However they would only be covered for 50 per cent of their original limit. A QBE spokesman said those 7000 businesses included “key businesses in the construction industry whose feedback we have heard and responded to”. Debra Bourke, the owner of the Macarthur Frames and Truss factory in western Sydney that supplies the building industry, many of whose customers were blacklisted by QBE, said the U-turn did not go far enough. Ms Bourke learned of QBE’s original decision on Monday morning from her insurance broker. “I went into a panic situation,” she told the Financial Review before QBE announced its backtrack. “Without that cover I would have no choice but to shut up shop.” She said if building suppliers were forced into hibernation, a big part of the construction industry could be forced to shut down. “If we don’t supply frames and truss to sites, there are no bricklayers, carpenters, plumbers, nothing. It all stops. And then you have millions of people lining up for Centrelink,” she said. She tried to negotiate with QBE for a solution, without success. So she wrote to her local MP, who forwarded her complaint to shadow financial services minister Matt Thistlethwaite. Mr Thistlethwaite called QBE, and after some wrangling, the insurer was persuaded to make some concessions for Ms Bourke She said she was concerned other suppliers to the building industry wouldn’t get the same special treatment. “We are one of those industries that is able to function [during the coronavirus crisis] and not put pressure on the government. But they do this to us and we will just be another tragic story of an industry forced to shut down.” Trade credit insurance policies give the supplier payout limits for each of its customers. If a customer limit is $1 million, the policy will cover the supplier for unpaid invoices of up to $1 million for that customer. At the weekend QBE withdrew cover on a large number of businesses with a limit of $US250,000 ($410,000), and massively reduced cover for all higher limits. The decision did not apply to essential services such as food, pharmaceuticals, agriculture and telecommunications. Construction was not considered essential. Ms Bourke said while she had never had to make a claim, she would not supply on credit without insurance. A Brisbane-based supplier of plasterboard and other building materials to the construction industry, which asked not to be identified, said if QBE followed through with its plan, then it would have to stop supplying those blacklisted companies. “Do I want to offer $300,000 credit without any guarantee? Not in the current climate,” a spokesman for the supplier told the Financial Review. He said the loss of business would likely knock 25 per cent off revenue and force the company to lay off employees, adding his customers would be worse off still, and some might fold. “If we withdraw cover on them, I think there is a chance they will go broke.” Also speaking before QBE’s late announcement, Graham Wolfe, managing director of the Housing Industry Association, said it was difficult to quantify the impact of QBE’s decision on the construction industry, but it would “have a significant impact on thousands of businesses in the building industry “There are some businesses out there whose supplier now has given them zero credit. They are either going to have to find the cash to pay upfront, or they won’t order. “A lot of our members are citing years and years of loyalty and partnership, and this. It comes as a tremendous shock to do it across the book.” He said the consequences for the industry would become apparent within a couple of weeks. Minister for Housing and Assistant Treasurer Michael Sukkar did not address the specific issue, but said the government would “continue to work with insurance companies who have a responsibility in this Team Australia moment to help their customers get to the other side”. The Financial Review understands QBE has asked the government for help. Matt Thistlethwaite, Labor’s shadow financial services minister, had earlier urged QBE to reconsider its decision. “Many SMEs may not survive, and more workers will end up needlessly entering the unemployment queue. We’ve asked QBE to recondsider their decision at least until insurance contracts are up for renewal. I can understand if they’re talking about new customers, but to do it it mid contract and leave a lot of these business without cover is pretty poor form,” he said. https://www.afr.com/companies/financial-services/qbe-backs-down-on-trade-credit-controversy-20200402-p54gcj

QBE backs down on trade credit controversy Read More »

#Surety #SuretyBonds #SuretyTech #InsurTech #AI #FutureProof

Subscribe

Follow Us

Linkedin Facebook

Copyright © 2024, Bond-Pro, Inc. All Rights Reserved.
Terms | Privacy

Scroll to Top
Document