Surety Bond Quarterly - Summer 2015 - 31

As a result of the increased competition, underwriting has
softened. There is some concern that the looser underwriting
will ultimately lead to an increase in claims. Finally, pricing
has continued to soften as competition increases.

Keith Langley
Langley LLP
Dallas, TX
Can a surety that justifiably relies on
an audit bring a cause of action against
the CPA for negligent misrepresentation?
Answer: In some jurisdictions, such as
Texas, an intended third party, such as a surety, justifiably
relying on an audit, can bring a cause of action against a
certified public accountant (CPA) for negligent misrepresentation. The CPA auditing a construction company holds
herself or himself out to have a particular knowledge and
expertise with construction accounting. The surety relies on
the CPA to be independent; maintain professional skepticism;
understand and test the internal controls of the contractor;
and to evaluate, analyze, and test key issues.
The applicable accounting standards require an auditor to ensure the validity of the numbers in a company's
financial statements. The failure of the auditor to do so can
negatively impact an underwriting surety that relies on the
audit. Whether a surety has the right to rely on the audit
and the right to sue if an audit is negligently performed is
jurisdiction specific.

Mike Pipkin
Weinstein Radcliff Pipkin LLP
Dallas, TX
In the current economic environment,
how can a contractor's banking relationship help it grow into different markets?
Answer: A principal should have a wide
range of financial and credit facilities in place, in addition
to its bonding capacity, including an operational line of
credit with its primary bank, plus equipment and inventory
financing, with such lending secured in a variety of ways.
While intercreditor agreements are often used by sureties
when financing of the principal is determined to be the best
approach to mitigate a loss, they can also be used during the
underwriting process, when a principal is evaluating new
opportunities. In those situations, carefully negotiated and
drafted intercreditor agreements, with the surety and lenders acknowledging and consenting to each other's rights
in specific collateral, can enable a principal to approach
new business opportunities with confidence in its lending
and credit relationships. At the same time both the surety and
the financial institution can remain secure in their rights and
collateral in the event of a claim.

Steve Reed
Smith, Currie & Hancock LLP
Atlanta, GA
What is the greatest risk today for federal contractors?
Answer: By far, the greatest risk is claims
made against contractors pursuant to the
False Claims Act. Such claims can be filed by private parties,
known as qui tam relators, on behalf of the government. The

cases are filed under seal (that is, secret and unknown to the
target defendant contractor). The government (Department
of Justice) has a relatively brief time to decide whether to
join the case; however, the time limit is routinely extended,
again in secret (that is, under sealed court orders) for up
to months and years. False claims can be something as
straightforward as misclassification of workers under prevailing wage requirements and then filing wage reports that
are incorrect (false statement) or submitting an equipment
lease cost for equipment owned by an affiliated company in
support of a change order proposal (false claim). The intent
requirement is general in nature, and the line between an
honest mistake and a false claim/statement is fuzzy.

Todd Regan
Robinson & Cole LLP
Hartford, CT
What are the three most important
risk-shifting contract terms a contractor
and its surety should be concerned about?
Answer: "No damages for delay" clauses
shift the financial risks of project delays to the contractor.
These clauses preclude recovery of increased costs resulting
from extended project duration, even when such costs result
from owner caused delays. Although there are exceptions
to enforcement of these clauses, they are routinely enforced
by courts to defeat otherwise meritorious claims.
Although mutual waivers of consequential damages can
limit damages a contractor can recover from an owner, they
protect the contractor and surety from claims for the owner's
lost revenue and other speculative losses due to delayed
project completion.
Although many states have "anti-indemnity" statutes that
invalidate clauses requiring contractors to indemnify owners
for damages caused by the owner's own negligence, contractors are often required to provide broad indemnification to
owners from damages arising from their work. Contractors
must ensure that their insurance covers the scope of their
indemnity obligations.

Armen Shahinian
Chiesa Shahinian & Giantomasi PC
West Orange, NJ
Is it sufficient to protect the surety's
interests if only the parent company of an
account signs the indemnity agreement,
where bonds will be issued with its subsidiaries or affiliates as the bond principals?
Answer: The best practice is to require each company on
behalf of which bonds are to be issued to sign the indemnity
agreement. Some, but not all, indemnity agreements state
that each signatory intends to bind its affiliates, but that
might not be sufficient to bind the non-signatory companies
to the terms of the indemnity agreement. The surety may
face interpretational, legal and evidentiary challenges in
seeking to establish that the parent company was authorized as an agent to bind its subsidiary. In such a case, a
surety's assignment rights, right to settle, access to books
and records, collateral deposit, and other rights spelled out
in common forms of indemnity agreements may be found
to be unenforceable against a bond principal that did not
itself sign the indemnity agreement.
●

NATIONAL ASSOCIATION OF SURETY BOND PRODUCERS | WWW.NASBP.ORG

31


http://WWW.NASBP.ORG

Table of Contents for the Digital Edition of Surety Bond Quarterly - Summer 2015

NASBP Upcoming Meetings & Events
2015-2016 NASBP Executive Committee
From the CEO - There is Poetry in Surety Claims, Surely
Practical Insights: What You Need to Know - Hiding in Plain Sight: Specifications as a Source of Risk
Profile: President Susan Hecker
Developing Your Leadership Vision
Liability Issues - Can Public Owners be Held Liable to Subcontractors and Suppliers for Failure to Require General Contractors to Obtain Required Payment Bond?
An Introduction to Probate Bonds
Class Act - Surety Team’s Cooperative Efforts Enable School to Open on Time
NASBP’s Attorney Advisory Council - Participants Opine on Current Risk Management Challenges and Business Opportunities
The AIA Describes Updated and Expanded Design-Build Documents Family
Contractor Practices That may Result in Construction Claims to Recover for Delays and increased Costs
NASBP Annual Meeting Speakers - Veterans can benefit private sector, but need help finding jobs
Index to Advertisers
Surety Bond Quarterly - Summer 2015 - cover1
Surety Bond Quarterly - Summer 2015 - cover2
Surety Bond Quarterly - Summer 2015 - 3
Surety Bond Quarterly - Summer 2015 - 4
Surety Bond Quarterly - Summer 2015 - 5
Surety Bond Quarterly - Summer 2015 - 6
Surety Bond Quarterly - Summer 2015 - 2015-2016 NASBP Executive Committee
Surety Bond Quarterly - Summer 2015 - From the CEO - There is Poetry in Surety Claims, Surely
Surety Bond Quarterly - Summer 2015 - 9
Surety Bond Quarterly - Summer 2015 - Practical Insights: What You Need to Know - Hiding in Plain Sight: Specifications as a Source of Risk
Surety Bond Quarterly - Summer 2015 - 11
Surety Bond Quarterly - Summer 2015 - Profile: President Susan Hecker
Surety Bond Quarterly - Summer 2015 - 13
Surety Bond Quarterly - Summer 2015 - Developing Your Leadership Vision
Surety Bond Quarterly - Summer 2015 - 15
Surety Bond Quarterly - Summer 2015 - Liability Issues - Can Public Owners be Held Liable to Subcontractors and Suppliers for Failure to Require General Contractors to Obtain Required Payment Bond?
Surety Bond Quarterly - Summer 2015 - 17
Surety Bond Quarterly - Summer 2015 - 18
Surety Bond Quarterly - Summer 2015 - 19
Surety Bond Quarterly - Summer 2015 - 20
Surety Bond Quarterly - Summer 2015 - 21
Surety Bond Quarterly - Summer 2015 - An Introduction to Probate Bonds
Surety Bond Quarterly - Summer 2015 - 23
Surety Bond Quarterly - Summer 2015 - 24
Surety Bond Quarterly - Summer 2015 - 25
Surety Bond Quarterly - Summer 2015 - 26
Surety Bond Quarterly - Summer 2015 - Class Act - Surety Team’s Cooperative Efforts Enable School to Open on Time
Surety Bond Quarterly - Summer 2015 - 28
Surety Bond Quarterly - Summer 2015 - 29
Surety Bond Quarterly - Summer 2015 - NASBP’s Attorney Advisory Council - Participants Opine on Current Risk Management Challenges and Business Opportunities
Surety Bond Quarterly - Summer 2015 - 31
Surety Bond Quarterly - Summer 2015 - The AIA Describes Updated and Expanded Design-Build Documents Family
Surety Bond Quarterly - Summer 2015 - 33
Surety Bond Quarterly - Summer 2015 - Contractor Practices That may Result in Construction Claims to Recover for Delays and increased Costs
Surety Bond Quarterly - Summer 2015 - 35
Surety Bond Quarterly - Summer 2015 - NASBP Annual Meeting Speakers - Veterans can benefit private sector, but need help finding jobs
Surety Bond Quarterly - Summer 2015 - 37
Surety Bond Quarterly - Summer 2015 - Index to Advertisers
Surety Bond Quarterly - Summer 2015 - cover3
Surety Bond Quarterly - Summer 2015 - cover4
Surety Bond Quarterly - Summer 2015 - outsert1
Surety Bond Quarterly - Summer 2015 - outsert2
Surety Bond Quarterly - Summer 2015 - 43
Surety Bond Quarterly - Summer 2015 - 44
https://www.nxtbook.com/naylor/SBPQ/SBPQ0118
https://www.nxtbook.com/naylor/SBPQ/SBPQ0417
https://www.nxtbook.com/naylor/SBPQ/SBPQ0317
https://www.nxtbook.com/naylor/SBPQ/SBPQ0217
https://www.nxtbook.com/naylor/SBPQ/SBPQ0117
https://www.nxtbook.com/naylor/SBPQ/SBPQ0416
https://www.nxtbook.com/naylor/SBPQ/SBPQ0316
https://www.nxtbook.com/naylor/SBPQ/SBPQ0216
https://www.nxtbook.com/naylor/SBPQ/SBPQ0116
https://www.nxtbook.com/naylor/SBPQ/SBPQ0415
https://www.nxtbook.com/naylor/SBPQ/SBPQ0315
https://www.nxtbook.com/naylor/SBPQ/SBPQ0215
https://www.nxtbook.com/naylor/SBPQ/SBPQ0115
https://www.nxtbook.com/naylor/SBPQ/SBPQ0414
https://www.nxtbook.com/naylor/SBPQ/SBPQ0314
https://www.nxtbook.com/naylor/SBPQ/SBPQ0214
https://www.nxtbookmedia.com