Onerous Contract & Bond Language Is an Unfortunate but Critical “Evergreen” Topic for Surety Professionals

Although typically more pronounced in difficult economic periods, onerous or one-sided terms and conditions, whether resident in the construction contract or in the bond form, seem to have a pervasive presence in the everyday life of construction principals and their surety professionals. Bond producers cannot be expected to act as lawyers, but knowledgeable bond producers can provide a tremendous service to their clients by being effective “risk issue spotters,” helping to identify problematic, risk-shifting language and to bring it to the attention of the principal’s legal counsel and the surety underwriter for resolution. Upfront risk identification can help construction firms to be in a position to mitigate problems or to avoid bid or proposal situations that may be unprofitable or, even worse, cost the viability of the contracting business. In these times, clients are appreciative for the extra value and effort that a knowledgeable producer brings to their account. Such skill further differentiates that producer from his or her competitors.

Having a working knowledge of key contract terms addressing the timing of performance, payments, liquidated damages, warranties, and termination for default will help a producer identify and understand whether particular terms may deviate from acceptable risk levels and pose problems from the standpoint of surety underwriting. Risk shifting language may be subtle—e.g., changing a “may” to “shall” —or overt—e.g., insertion of a confession of judgment statement. Regardless of the obviousness of such changes, each is intended to shift the balance of contract risk being assumed by the principal, most often to a decidedly unfavorable level. Building your proficiency in identifying problematic contract and bond provisions is a skill set that can be learned and practiced. Understanding the importance of that skill set to the success of bond producers, NASBP developed a skills workshop, entitled “Construction Contracts and Bond Forms Workshop,” last year with the law firm of Smith, Currie & Hancock LLP. This one and one half day program focuses bond producers and surety underwriters on critical contract and bond form risk topics, providing practical insights and strategies to address problematic language.

The Workshop is again being offered this year, and will occur on October 18 – 19 at the Hyatt Regency Dallas in Dallas, Texas. Experienced construction and surety lawyers will present on contract and bond form topics. Among the contract topics are site condition disclaimers, indemnity obligations, default terms and remedies, extended warranties, and no-damage-for-delay clauses. Bond form topics include Miller Act issues, declaration of default procedures, and conditions precedent to the surety’s step-in obligation. Attendee questions and discussions will be encouraged. Attendees also will have the added benefit of receiving continuing education credit of a state average of 10 credit hours. Further information about the Workshop, including how to register, is available by clicking here.

Being on top of your “game” by knowing the risk issues confronting your clients is a smart move for success during this trying economic period. I hope you will avail yourself of this educational opportunity.