Archive for the ‘State Bond Claims’ Category

Top Five Surety Bond Misconceptions

On October 19, 2011

As many contractors know, starting a large construction project isn’t as simple as having your crew show up to the job site to begin work. There is a lot more involved in acquiring the appropriate permits, licensing and legal documents in order to be granted permission to start. To add to the pile of paperwork, surety bonds are usually the starting process to not only begin construction work, but it’s also required of many businesses prior to opening their doors. Although they are a necessity for a wide-range of industries many still ask, what is a surety bond?

Simply put, surety bonds are a three-party agreement, which consists of an obligee, principal and surety company. The surety agency assesses the financial stability of the person obtaining the bond (the principal), and if approved assures the obligee (the party requiring the surety bond) that he/she will hold to the terms specified in the contract. If the principal should default on the agreement in anyway, the surety agency is responsible for payment of financial damages.

In general the surety bonding process can seem overwhelming and confusing, leaving purchasers with questions swirling in their heads. To help clarify the most common concerns raised during the bonding process, we’ve put together the five most common misconceptions in acquiring a surety bond.

Surety bonds are another form of insurance.

Although they both serve to protect parties in an agreement, there are several differences between surety bonds and insurance. With insurance, risk is assigned to the insurance company that is protecting their customer. However, with a surety bond the risk remains with the principal – or the party purchasing the bond and the protection is for the obligee, or the person requiring the bond. Should the principal default on an aspect of their contract, the surety company will provide financial compensation to the obligee and then refund the damages from the principal.

Another major difference between surety bonds and insurance are how rates are determined in pricing structures. Unlike insurance, surety bond rates are not contingent on one’s past history. For example, many insurance policy premiums are determined based on an individual’s claim history. Those fortunate enough to have a flawless record are almost guaranteed to pay the lowest rates for their policies. However, surety bond costs are not written in the same manner as insurance policies. Rates are based upon one’s financial history, credit, and amount in liquid assets. Unlike insurance which is acquired to help in times of loss, bonds are written with the assumption no losses or claims will be filed. The premiums paid by principals for surety bonds are seen merely as service charges, while the surety company serves as the financial guarantor of the project. Because of this, those who have acquired a surety bond and had a claim filed against them, it is likely they won’t be approved to purchase a surety bond again.

Surety bonds protect the purchaser of the bond.

The main service of surety bonds is to protect the person requiring the bond, not the individual who is obtaining it. In surety terms, the person who requires the bonds is the obligee while the purchaser is the principal. Although principals pay a premium to obtain a surety bond, they do not receive protection. Rather, the obligee will be awarded financial compensation should the principal default on the agreement.

Performance and payment bonds serve the same function.

Even though they are typically acquired together, performance bonds and payment bonds are two separate entities. Payment bonds ensure that principals will compensate all laborers on the project. This includes subcontractors and material suppliers.

A performance bond guarantees the principal will perform the work on the project as specified in the contract.

Principals are expected to pay for the bond in full.

Depending on a principal’s financial history, he/she may only be required to pay an annual premium to acquire a surety bond. The amount individuals are expected to pay at once and annual varies by bond type and whether they are considered a bad credit surety bond applicant.

Surety bonds can be used from state to state.

Just as each state has its own set of laws surety bond regulations also vary from state to state. The easiest way to determine your bonding needs is to research your state’s requirements or speak to a reputable surety bond agent.

Posted in:     State & Federal Contracting, State Bond Claims  /  Tags:   /   Leave a comment

Your Mechanics Lien Resource Treasure Trove

On June 23, 2011

Mechanics Liens used to be a cornerstone topic on this blog; meaning I would write an article about filings, foreclosing and/or litigating a mechanics lien quite frequently. In fact, over the years I sort of consider myself a “lien guy.”  Insofar as construction law goes, mechanic lien and state or federal bond claims has sort of become my thing.

So, where has all of the mechanic lien posts gone?!

If you’re a reader of this blog but not my other blog – The Construction Lien Blog – you may be wondering.  But as you can gather from the blog’s title, a few years ago I created a separate blog focused on lien issues across the country, and post very regularly there on the topic.

As I exhaust the subject on that blog, and don’t to duplicate postings from there over here, most of my mechanic lien and bond claim talk is done on the Construction Lien Blog.  So, if you’re interest in lien laws (and if you are a construction participant or construction law person, lien laws are super important), I recommend you take a look at this other blog.

To give you a more direct path to relevant information, here are the articles posted on the construction lien laws in the states where Wolfe Law Group practices.

Also, be sure to check out these other resources providing through the lien and notice preparation and management company I founded in 2007, Zlien:

Posted in:     Around The Web, From The Experts, Mechanics Lien, Miller Act Claims, State Bond Claims  /  Tags: , , , , , , ,   /   2 Comments

New Orleans Declares Felons Not Responsible Bidders on Public Projects and Washington Contemplating Similar Rule

On May 25, 2010

Mike Purdy’s Public Contracting Blog is so awesome, he got to this unique story that touts a legal link between Seattle, WA and New Orleans, LA before I could.    Before getting to the article, let me comment that if your company does public contracting work anywhere in the nation, Mike Purdy’s blog is going to consistently feed you very relevant information on the topic.   I highly recommend you check it out, and subscribe to his feed.

With that said, what article am I talking about?

Well, if you’re from the New Orleans area you likely remember the spat between former Mayor Ray Nagin and the city council about whether convicted felons are considered “responsible bidders” on city contracts.    After the fight, the vote, the veto, and the veto override, an ordinance (Ordinance Calendar No. 27,892) was adopted designed to stop the city from awarding contracts or grants to folks convicted of felonies in the previous 5 years.

Defining “Responsible Bidder”

What is a “responsible bidder?”   Nearly every state and city’s public bid laws use the term, allowing government entities to award contracts only to “responsible bidders.”    This interesting question of just what makes a bidder “responsible” was squarely in dispute between the New Orleans mayor and city council.

In the mayor’s veto message, he wrote that “under Louisiana law, responsibility [refers to] likely contractor performance, not the conviction history of a contractor’s principals, members and/or officers.”

Council-member Stacey Head lead the fight against the mayor for the council, arguing that responsibility does refer to the qualifications of the bidder him/her/itself, and not simply whether the contractor is likely to perform.    In her veto-override press release, she quotes the Louisiana Attorney General and Louisiana Supreme Court on the subject.

The AG states that “responsibility refers to the character or quality of the bidder – whether it is an entity with which you are safe doing business.”   Understanding Public Bid Law, Michael J. Vallan, Assistant Attorney General, February 20, 2008.

The Supreme Court allows an municipality to look at “financial ability, skill, integrity, business judgment, experience, reputation…and other similar factors bearing on the bidder’s ability to successfully perform the contract.”  Louisiana Associated General Contractors v. Calcasieu Parish School Board, 586 So.2d 1354 (La 1991).

Ordinance Cal. No. 27-892

So, what does this ordinance say?   Simplly, it prohibits the city from contracting with certain felons.   Here is the precise language:

[Prohibits City from contracting with] any person, corporation, or entity, whose principal(s), member(s), and/or officer(s) have within the preceding five years been convicted of, or pled guilty to, a felony under state or federal statutes for embezzlement, theft of public funds, bribery, falsification or destruction of public records.

The ordinance does not cast a terribly wide net, and so it’s surprising that this caused any controversy at all.    The City is not restricted from contracting with any felons, only those who committed a felony that has some sort of public-corruption element.

Responsible Bidder Criteria Important in Washington and Elsewhere

New Orleans is not the only place examining the criteria of a “responsible bidder” in public bid law.  As Mike Purdy points out in his post, bidder responsibility is a hot topic in Washington, where a task force was created by the Capital Projects Advisory Review Board (CPARB) to “address concerns by contractors of how public agencies are using responsibility criteria.”

tThe CPARB has released Guidelines on Bidder Responsibility (check them out, and the CPARB page here).   The criteria guidelines released by CPARB are much broader than the New Orleans ordinance, requiring consideration of things like delinquent state taxes, on-going lawsuits and the like.

One difference between the “Guidelines” and the “ordinance” is, of course, that the New Orleans ordinance actually prohibits a class of persons from being considered a responsible bidder, while the guidelines only offers suggestions as to what municipalities should consider when selecting a responsible bidder.    Will Washington take the next step and mandate the elimination of certain bidders?   Mike Purdy points out that they have the power:

Under RCW 39.04.350, a public agency in Washington State could establish Supplemental Bidder Responsibility Criteria similar to the New Orleans measure on not contracting with firms whose owners are convicted felons.   The Task Force on Bidder Responsibility will hold its second meeting on May 20, 2010.

Posted in:     Louisiana, Miller Act Claims, Regulations, State Bond Claims, Washington  /  Tags: , , , , , , , ,   /   Leave a comment

The Difference Between Public and Private Projects

On May 20, 2010

When it comes to filing mechanics liens and collecting money owed to your company, there is a world of difference between private and public construction projects. And it’s very important to know the difference between the two.

Why Does It Matter?

Before explaining what distinguishes these projects from one another, let me talk a little about why it matters.

If unpaid on a private project, the laws in most states allow you to file a “mechanics lien” against the property. This gives your company an actual interest in the real estate your labor or materials improved. The lien must be filed within a particular period of time, and if the lien is not paid, you’re required to “foreclose” upon the lien to obtain payment, which could result in the property being sold at auction to obtain the funds to payoff your claim.

If unpaid on a public project, there is a much different experience.

Generally, your company is not able to file a “mechanics lien” against a public project because most states (and the federal government) prohibit any party from gaining an interest in public property. As a result, most public construction projects may only proceed if a “payment bond” is issued. In the event of non-payment on a public job, rather than file a lien the unpaid party will file a “claim” against the bond. Instead of foreclosing on the property, the claimant will “foreclose” – so to speak – against the lien, eventually resulting in payment.

What is the Difference Between Public and Private Projects?

Easy.

99 times out of a 100, a project is private when owned by a private person or entity, and is public when owned by the government.

When the government is the United States or a federal agency, the applicable rules are found within the “Miller Act.” We’ve written a good deal about Miller Act rules and claims here at the Construction Lien Blog. When the government is the state or a state agency, the applicable rules are usually found within a “Little Miller Act” statute. These vary state-by-state, a great resource on little miller acts across the country is linked below (and here).

Be very careful when performing work on a private school (i.e. private university) or for a non-profit agency, and even large public corporations. We sometimes think of these types of organizations as “public” agencies, but that does not necessarily render them a “public construction project.” Usually, such a designation is reserved for land and projects owned by the federal or state government. If you’re unsure, it’s a good idea to ask, or to hire an attorney to research the question.

GREAT Resources for Public Lien Laws and Public Contracting Issues

Here are two great resources for folks looking to learn a little more about public contracting in general, and about bond / lien claims against public projects.

1) Mike Purdy’s Public Contracting Blog: Mike Purdy is a retired public contracting consultant out of Seattle, WA. His frequently updated blog addresses public contracting questions and laws across the country.

2) Law Office of David Bransdorfer Miller Act Summaries: This website, offered by a New York law firm, provides summaries of the Miller Act, and each state’s version of the Miller Act. It’s a great place to start researching the applicable public contracting claim / lien laws in your state.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Posted in:     Filing Requirements, Miller Act Claims, State Bond Claims  /  Tags: , , ,   /   4 Comments

Don't Know Who Bonded A State Or Federal Project? Just ask.

On January 12, 2010

In nearly every circumstance, a general contractor on a federal or state project is required to maintain a bond for the work being performed.   These bonds protect the payment rights of subcontractors, sub-subcontractors and suppliers.    In the event any of these parties are not paid on the project, the unpaid party can typically file a claim against the surety who bonds the project as per the Miller Act or a state’s Little Miller Act.  (Read this great article from Construction Business Owner about bonds, generally).

Claims against sureties are beneficial because:  (1) It can reduce the prevalence of personality conflicts between the unpaid party and the general contractor; and (2) It is a guarantee that at the end of a proceeding, money will be there.

However, you can’t make a claim against a surety if you don’t know who the surety is.   And if you’re not on the best of a terms with a general contractor, you may fear that it won’t reveal the surety to you.

So, this begs the question:  how on earth do you discover the identity of a surety?

The answer is quite simple:  Just ask.  That’s right, just ask for it.

Who To Ask?

Under the Miller Act and most Little Miller Act statutes, the public agency in charge of the project is required to (and quite used to) disclose the identity of the surety to anyone who asks for it.

Using Google, you can generally always find the governing authority.   A governing authority will typically manage its contracts through:

(a) public works department;
(b) new construction department;
(c) purchasing department;
(d) capital projects department; or
(e) facilities department

Most of these governing authorities (almost all) will have a website that gives you some information about their public contracts.   Figuring out which department is in charge of the contract is generally a toss up, so you will likely need to navigate around government websites to find the best possible contact.

How to Ask

As I stated above, agencies are required to disclose the surety on the job….actually getting it, just depends on how difficult the agency will make it for you.

If a governing authority has a website, you will generally be able to find out at least a little bit of information about their projects. If the project is relatively new, they might still have bid postings, pictures, articles and reports posted.

Giving the agency a phone call will usually do the trick, but if you run into trouble, just send a certified letter making the request.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Posted in:     Miller Act Claims, State Bond Claims  /  Tags: , ,   /   Leave a comment
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