Surety Bond Quarterly - Fall 2016 - 18


2. Monitor the Developer's
Financial Status
If the developer is self-funding,
the surety should closely monitor
the developer's financial ability to
complete the required improvements. If the developer has bank
financing, the surety should communicate often with the bank to
assure that the bank is properly
disbursing funds as subdivision
improvements are completed
and that set aside funds are used
solely for their intended purpose. Continuous monitoring of
the developer's financial status
and the progress of the required
improvements is particularly
important given that the surety's
exposure on Subdivision Bonds
may be extended for six to ten
years (or longer) beyond the completion date initially contemplated
in the Subdivision Agreement.
A Subdivision Agreement
generally provides for completion within one to two years and
allows for relatively easy extensions. The limitations period for
suit on most Subdivision Bonds
runs from the completion date in
the Subdivision Agreement. This
beginning date for the limitations
period may be modified by any

18

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BOND QUARTERLY | FALL 2016

extensions granted by the Public
Agency. The nature of a subdivision development and the changes
in the housing marketplace often
require the developer to seek one
or several extensions of time for
the completion of the improvements. Unless the public is threatened by a dangerous condition
or some other health hazard, the
Public Agency generally grants a
requested extension. Most forms
of Subdivision Bonds do not
require that the Public Agency or
the developer notify the surety of
an extension. Thus, the surety's
exposure on the Subdivision
Bonds may be extended for a
considerable period of time without its knowledge; and the longer
the project takes, the less likely it
may be that the developer has the
funds to complete the improvements. Thus, continued vigilance
is important in order to properly
assess the surety's exposure on
Subdivision Bonds. If the project
is self-funded by the developer, the
surety should assess the developer's continuing ability to install the
improvements. Where the surety
has legitimate concerns relative
to the ability of the developer to
pay for the costs of completion,

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the surety may consider requesting collateral as may be permitted under the principal's indemnity
agreement.
A particularly difficult issue
arises when the surety has
obtained a Set Aside Agreement
from a bank. If the project is
extended, it is incumbent upon
the developer and the surety to
assure themselves that the Set
Aside Agreement does not contain an expiration date. If there
is such a date, the surety and the
developer should request that
the expiration date be extended
simultaneously with any extensions of the project for an equal
length of time. Thus, the surety
must not only monitor the completion of the project but, it should
also assure itself that the developer has funds or financing in
place during any extensions.
3. Communicate with the Developer
The surety should periodically
communicate with the developer to determine if there are
any major changes in its development plans or financial condition that could impact its ability to
timely complete the subdivision
improvements. If a developer's
financial condition changes or
economic or marketplace conditions change, the developer may
work with the Public Agency to
assure that appropriate extensions are applied for and obtained
and communicate with the bank
to assure that it understands and
agrees to maintain its financing
and/or Set Aside Agreement during the extended time frame.
4. Communicate with the Bank
Similarly, the surety should
maintain open lines of communication between itself, the developer, and the bank that issued the
Set Aside Agreement, or provided
other financing, to ensure that,
if the developer is in default of
its obligations under any bank
financing arrangement, the bank
will continue to work with the
surety to ensure the completion


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Table of Contents for the Digital Edition of Surety Bond Quarterly - Fall 2016

NASBP Upcoming Meetings & Events
2016-2017 Executive Committee
From the CEO: Success Comes with Sharing Perspective and Knowledge
Practical Insights: A Contractor’s Risk Management Portfolio Should Include a Commercial Crime Policy
Rethinking the Change Order Process: NECA Foundation’s Guidelines Offer New Approach, Substantially Reducing Change Order Costs
Six Considerations in Underwriting Subdivision Bonds (Part 2 of 2)
Affirmative Action and the Office of Federal Contract Compliance Programs: What Surety Professionals and Their Contractors Should Know
Surety Data Standards: What are They, and Why Should Surety Professionals Care about Them?
2016 NASBP Resource Directory
Index to Advertisers
Surety Bond Quarterly - Fall 2016 - cover1
Surety Bond Quarterly - Fall 2016 - cover2
Surety Bond Quarterly - Fall 2016 - 3
Surety Bond Quarterly - Fall 2016 - 4
Surety Bond Quarterly - Fall 2016 - 5
Surety Bond Quarterly - Fall 2016 - 6
Surety Bond Quarterly - Fall 2016 - 2016-2017 Executive Committee
Surety Bond Quarterly - Fall 2016 - From the CEO: Success Comes with Sharing Perspective and Knowledge
Surety Bond Quarterly - Fall 2016 - 9
Surety Bond Quarterly - Fall 2016 - Practical Insights: A Contractor’s Risk Management Portfolio Should Include a Commercial Crime Policy
Surety Bond Quarterly - Fall 2016 - 11
Surety Bond Quarterly - Fall 2016 - 12
Surety Bond Quarterly - Fall 2016 - 13
Surety Bond Quarterly - Fall 2016 - Rethinking the Change Order Process: NECA Foundation’s Guidelines Offer New Approach, Substantially Reducing Change Order Costs
Surety Bond Quarterly - Fall 2016 - 15
Surety Bond Quarterly - Fall 2016 - 16
Surety Bond Quarterly - Fall 2016 - Six Considerations in Underwriting Subdivision Bonds (Part 2 of 2)
Surety Bond Quarterly - Fall 2016 - 18
Surety Bond Quarterly - Fall 2016 - 19
Surety Bond Quarterly - Fall 2016 - Affirmative Action and the Office of Federal Contract Compliance Programs: What Surety Professionals and Their Contractors Should Know
Surety Bond Quarterly - Fall 2016 - 21
Surety Bond Quarterly - Fall 2016 - 22
Surety Bond Quarterly - Fall 2016 - 23
Surety Bond Quarterly - Fall 2016 - Surety Data Standards: What are They, and Why Should Surety Professionals Care about Them?
Surety Bond Quarterly - Fall 2016 - 25
Surety Bond Quarterly - Fall 2016 - 26
Surety Bond Quarterly - Fall 2016 - 2016 NASBP Resource Directory
Surety Bond Quarterly - Fall 2016 - 28
Surety Bond Quarterly - Fall 2016 - 29
Surety Bond Quarterly - Fall 2016 - 30
Surety Bond Quarterly - Fall 2016 - 31
Surety Bond Quarterly - Fall 2016 - 32
Surety Bond Quarterly - Fall 2016 - 33
Surety Bond Quarterly - Fall 2016 - 34
Surety Bond Quarterly - Fall 2016 - 35
Surety Bond Quarterly - Fall 2016 - 36
Surety Bond Quarterly - Fall 2016 - 37
Surety Bond Quarterly - Fall 2016 - 38
Surety Bond Quarterly - Fall 2016 - 39
Surety Bond Quarterly - Fall 2016 - 40
Surety Bond Quarterly - Fall 2016 - 41
Surety Bond Quarterly - Fall 2016 - Index to Advertisers
Surety Bond Quarterly - Fall 2016 - cover3
Surety Bond Quarterly - Fall 2016 - cover4
Surety Bond Quarterly - Fall 2016 - outsert1
Surety Bond Quarterly - Fall 2016 - outsert2
Surety Bond Quarterly - Fall 2016 - outsert3
Surety Bond Quarterly - Fall 2016 - outsert4
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