Surety Bond Quarterly - Winter 2014 - (Page 22)

feature The Top 10 ThingS Know Public Owners Should About Surety Bonds SURETY BONdS ON a public construction project offer an owner the best possible fiscal and risk management tool: (1) thorough prequalification of the contractor and assurance that the bonded contractor is qualified to perform the contracted obligation; (2) a guarantee that the contract will be completed if the contractor defaults on its performance obligation; and (3) payment of certain laborers and suppliers if the contractor fails to pay for work performed or materials supplied. Surety bonds on public works projects protect the public treasury from the potentially devastating expense of contractor failure by transferring the burden of construction risk from the public owner to the surety company. Surety bonds. A surety bond is a three-party contract, by which one party (a surety company) guarantees the performance of another party (the principal, who is a contractor) to a third party (the obligee, or the public owner). Surety bonds used in construction are called contract surety bonds. 22 Types of contract surety bonds. There are three main types of contract bonds that sureties provide. A bid bond helps to screen out unqualified bidders and provides the owner a means to recover the cost of having to repeat the bidding process if the awarded bidder is unable or unwilling to enter into the contract and supply the required performance and payment bonds. A performance bond provides an owner with a guarantee that, in the event of a contractor's default, the surety will meet its obligations under the bond to fulfill the construction contract. A payment bond assures that certain subcontractors and material suppliers will be paid, if the contractor fails in its payment obligations. Licensed surety companies. Most surety bonds are written by divisions of insurance companies, which are licensed and regulated by state insurance departments. Unlike traditional two-party insurance policies, surety bonds are three-party agreements, in which the surety does surety BoNd Quarterly | WINTER 2014 not expect a loss. Through the surety's rigorous prequalification process, the surety expects the bonded contractor to perform its contractual obligations, significantly reducing the likelihood of default. Based on that expectation, the surety issues the performance and payment bonds guaranteeing those obligations. This is an enormous benefit to public owners, which are charged with guarding the public treasury. Miller Act bond requirements. For nearly 80 years, the federal government has required contractors on federal public works projects to obtain surety bonds to guarantee performance of the contract and the payment of certain subcontractors and suppliers. Under the Miller Act, a contractor on federal construction contracts exceeding $150,000 must obtain both a performance bond and a payment bond. The corporate surety company issuing such bonds must be listed as a qualified surety on the Treasury List. All states, and many local jurisdictions, have similar

Table of Contents for the Digital Edition of Surety Bond Quarterly - Winter 2014

NASBP Upcoming Meetings
2014-2015 NASBP Executive Committee
From the CEO: Education is everywhere and in everything we do
Practical Insights: What You Need to Know-Lease Accounting, A new standard is coming
Surety Up North
Training the Next Generation of Surety Talent
EJCDC’s New P3 Document
The Top 10 Things Public Owners Should Know About Surety Bonds
What's a Construction Company's Most Valuable Asset?
NASBP Virtual Seminars
School’s Back!
New NASBP Resource: Information map of advocacy issues
Meetings in Photos
The Importance of Cracking the “WIP” Monthly
U.S. Customs and Border Protection to Deploy eBond
NASBP Outreach Continues Throughout the Year
Index to Advertisers

Surety Bond Quarterly - Winter 2014