We have a department at EPB&B entirely dedicated to bonding
|EPB&B bond manager Jim Ewald|
This full-service team is prepared to provide you these types of bonds:
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Suretyship is an ancient practice, with the first documentation contained in the Code of Hammurabi, circa 1790 BC, which outlined requirements for individuals to act as surety. The practice of an individual co-guaranteeing the obligations of another for a pre-determined fee spread throughout the Fertile Crescent and is reflected in the early legal codes of Carthage, Persia, Assyria, Rome, Babylon the ancient Hebrews and as far West as the British Isles. The oldest surviving written surety contract is a contract of financial guarantee executed in Babylonia in 670 BC. Modern principles of suretyship have their roots in Roman jurisprudence enacted starting around 150 AD.
In the 19th century contractor defaults on public works placed an escalating burden on taxpayers, and in response Congress passed the Heard Act in 1894 to authorize the use of corporate surety bonds to secure all federally funded projects, since liens cannot be placed against these by unpaid subs or suppliers. More recently, the Miller Act was passed in 1935 and this is the current authority mandating surety bonds on federal public works projects. Under this legislation performance bonds are required on public works contracts in excess of $100,000 and payment protect, preferably a payment bond, on contracts above $25,000. Most states and local jurisdictions have enacted similar legislation requiring surety bonds on public works which are referred to as Little Miller Acts. For example, the State of Florida recently increased the minimum level above which a performance bond is required from $100,000 to $500,000.
Over the past couple of years, downturns in residential construction have forced many contractors from the private to the public sector, driving down margins. This in turn has increased contractor failures, producing tightening in the bond and lending industries. Surety underwriters have responded to escalating losses by returning to fundamentals of underwriting. A proactive approach to assisting the underwriter in understanding your company will assist you in maximizing your bond capacity.
Here are 5 steps you can take to negotiate the most favorable terms available in today’s tight market:
There are many different types of bonds, but of these Contract Bonds are the ones of most interest to contractors bidding public works projects. Contract bonds are also increasingly be required of subcontractors by larger generals, often at the direction of the general contractor's surety company. Basically these guarantee the performance and payment of obligations under a construction contract.
The three associated types of bonds are bid, performance and payment bonds.
A bid bond acts as a prescreening device and guarantees to the owner, or Obligee, that if awarded the contract, the contractor, or Principal, will enter into the agreement and provide any performance and payment bonds required. In the event the contractor fails to do so, the bid bond covers the difference in amount bid between their low bid and next higher one up to the bid bond amount, which generally ranges from 5 or 10% for municipal, county of state work to 20% for federal projects.
Once a contract is awarded, the contractor is generally given 10 days to present the performance and payment bonds. These can be written separately or combined on a single bond form, but cover two distinct obligations. The performance bond guarantees that the successful low bidder will perform the work according to the specifications and time schedule provided in the plans. Failure to finish the work by the stated completion date often triggers a liquidated damages clause under which the contractor must then deduct a per day pre-agreed upon dollar assessment from the contract price for delays in completion.The payment bond guarantees that the contractor will pay legitimate billings from subcontractors and suppliers, thus delivering a lien-free project to any private owner, and taking the place of liens on public works on which these cannot be placed.
As a result of the downturn in housing, many residential contractors have been forced into the public sector, driving prices down, often below cost. This has combined with restricted bank credit to produce increased contractor failures and a tightening in the surety industry. Contractors who trust their insurance agent to handle their bonding are often experiencing difficulty obtaining the bonding
capacity they need to operate profitably.
Jim Ewald has over 31 years experience specializing in bonding. He can offer a wide variety of bonding solutions through several different bonding companies and has helped contractors of all sizes increase their sales and profits over the years. Contact Jim at (503) 445-8404 for more information or help with any bonding needs.