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Protection for Third Party Vendor Contracts. Surety Bonds For Public Entities. Why Bonds Are Required. Miller Act of 1935 For federally funded public works projects over $150,000 “Little Miller Acts” For state & local public works projects. What is a Surety Bond?. Principal (Vendor).
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Protection for Third Party Vendor Contracts Surety Bonds For Public Entities
Why Bonds Are Required • Miller Act of 1935 • For federally funded public works projects over $150,000 • “Little Miller Acts” • For state & local public works projects
What is a Surety Bond? Principal (Vendor) Obligee (Public Entity) Surety (Guarantor)
Elements Of Prequalification Capital Capacity Character
Capital: Financial Strength Capital • Financial statements • Net worth • Cash flow • Indemnity
Capacity: Ability to Perform Capital • Financial statements • Working capital • Net worth • Cash flows • Indemnity Capacity • Resumes • Contingency plan • Business plan - short & long term • Equipment
Character: References & Reputation Capital • Financial statements • Net worth • Cash flows • Indemnity Capacity • Resumes • Contingency plan • Business plan - short & long term • Equipment Character • Reputation • Relationships • References
Role of the Underwriter • Review obligations • Determine the risk • Provide qualified principal to owner Underwriter
Underlying Agreement • Primary instrument to establish risk associated with the guarantee • Requirements contained in the contract documents
Functions of Surety Bonds • Competitive bidding process • “On time performance” • Save tax dollars • Protect taxpayer dollars Surety Bonds
The Advantages Of Surety Bonds • Qualified vendors • Competitive pricing • Timely contract performance • Quality product • Financial recourse • Insulates public officials • Efficient management of public works administration • Protect taxpayer dollars Surety Bonds
Surety vs. ILOC ILOCBond • Financial prequalification Yes Yes • Capabilities prequalification No Yes • Review of contract documents and guarantee forms No Yes • Guarantee completion No Yes • Warranty period covered No Yes • Cancellable Yes No/Yes • 100% coverage No Yes • Impact on bank line Yes No
When Problems Arise .... • Keep the surety informed of the principal’s progress • If principal defaults, submit written declaration of default • Allow the surety time to investigate the claim Obligee
Surety’s Responsibilities In a Claims Situation • Principal’s contractual obligations • Obligee’s contractual obligations • Principal’s defense • Whether the obligee has met its obligations Surety
Managing The Claims Process • Be cognizant of legal position • Avoid improperly worded letters • Written notice of known problems • Ask for a specific response Obligee
Surety Responsiveness • Be reasonable in your expectations • Be diligent in providing notice & maintaining records • Contact insurance commissioner Obligee
The Advantages Of Surety Bonds • Qualified vendors • Competitive pricing • Timely contract performance • Quality product • Financial recourse • Insulates public officials • Efficient management of public works administration • Protect taxpayer dollars Surety Bonds
Your Surety Professional Is Your Consultant Financial Security Qualified Principals