NASBP Presents Second Annual SSLAB Awards 

NASBP is proud to present its Second Annual Special Surety Language and Bond (SSLAB) Awards. The overwhelming and positive response to the First Annual SSLAB Awards convinced NASBP staff that these Annual Awards are a worthy tradition. There is nothing more gratifying than recognition from your peers in the industry for special accomplishments and a job well done. The SSLAB Awards recognize achievements in outstandingly special surety bond and contract language. The recipients of these singular awards earned their honors by meeting some or all of the following bond and/or contract language criteria: ignoring industry customs and practices, treating surety bonds as traditional insurance policies, placing undue risks on contractors and sureties, restricting competition, and penalizing small and emerging contractors. In short, these award-winning obligees successfully shifted construction risks in ways that were self-defeating to their ultimate goals.

Yes, the SSLAB Awards are tongue-in-cheek awards; but they are given for real-life bond and contract language forwarded to NASBP by its members and affiliates. The obligees that either inadvertently or purposefully created the special surety bond and contract language receiving award recognition shall remain anonymous. NASBP, however, enthusiastically singles out the recipients of these awards–through comment letters, telephone calls, and in-person meetings–and fervently hopes that none of this year’s award recipients will be repeat winners in the future.

1. The I-Don’t-Need-to-Comply-with-the-Law Award

This award is given for language in a bid bond that mandates that the bond have a resident agent countersignature or the bid will be rejected. There were many contenders for this award, as apparently few people in government seem to be aware that resident agent countersignature requirements have been either held unconstitutional or legislatively repealed in every state in the Union.

The proud winner was a Bid Bond Affidavit on a public works project in Florida, which required a countersignature by a “Florida Resident Agent.”

NASBP is pleased to bestow award recognition on this government agency that clearly adheres to the notion that its employees are too busy to notice changes in the law and besides the old ways, even if unconstitutional, are the best ways.

2. The Sky-Is-the-Limit or the Excessive-Penal-Sum Award 

This award is presented for distinguished achievement in reducing the bidder pool on a private project through mandating an excessive bond amount. The proud winner of this award required a “150 percent Performance Bond” on a building project.

NASBP is pleased to bestow this award recognition because such an obligation grossly exceeds the scope of the contractor’s obligation and acts as excess insurance, allowing a lucky surety to test its risk tolerance. Heck, the sky is the limit of the surety’s obligation.

3. The Bid-Bonds-Are-Fun-For-Sureties Award 

NASBP proudly bestows award recognition on a bid bond form that included a 100% forfeiture provision and interesting confessed judgment language:

THE SURETY SHALL EMPOWER ANY ATTORNEY TO CONFESS JUDGMENT IN FAVOR OF THE OBLIGEE AND AGAINST THE SURETY, TOGETHER WITH AN ATTORNEY’S COMMISSION OF TWENTY PERCENT (20%), BESIDES COST OF SUIT.

To add to the excitement, the bid bond form provides that the surety shall pay all loss occasioned by any bid default on the part of the principal “which shall be determined by the obligee,” and “shall be final, binding and conclusive upon the surety.” This bid bond form will appeal to sureties that desperately seek to increase their loss ratios.

4. The Just-Show-Me-the-Money Award 

There were many contenders for this very special award, as owners vie for the highest achievement in turning a bid bond into an arbitrary windfall insurance policy. And the award goes to the following bid bond language:

If the District awards the Contract to the Principal and the Principal fails and/or refuses to execute the Contract or to furnish the required Payment and Performance Bonds, the Surety and/or the Principal shall forfeit and pay to the District, as Liquidated Damages, the full penal sum of this Bid Bond.

Owners always want to control the risks of construction projects and dumping all the risk onto the surety—and, in due course, the principal—frees up the obligee’s peace of mind and bank account. That the forfeited penal sum likely bears absolutely no relationship to the actual costs and losses that would be incurred by the District in order to reprocure should only be an insignificant consideration for the surety.

5. The Obligee-Is-Always-Right Award

This award is bestowed upon an owner whose performance bond language strongly suggests that the surety issue the bond and then waive any rights whatsoever by acknowledging that the obligee is always right:

If the Principal shall remedy, without cost to the Obligee, all defects which may develop during the Correction Period, . . . which defects, in the sole judgment of the Obligee shall be caused by or shall result from defective or inferior materials or workmanship, then this Performance Bond shall be void . . . .

This award winner received extra points because the Obligee’s attorneys not only included a requirement that the surety will pay all the Obligee’s attorneys’ fees and costs in enforcing any of its rights under the contract or the bond but also the Obligee’s attorneys included the full name of their firm in the performance bond!

6. The What’s-Good-for-the-Goose-Is-Not-Good-for-the-Gander Award 

This award goes to that very special contract damages provision, by which the surety waives its right to any consequential and incidental damages while the owner retains its right to liquidated damages, consequential damages, and/or incidental damages:

Contractor waives Claims against Owner for consequential damages and/or incidental damages arising out of or relating to the Project and Contract Documents. . . . Notwithstanding anything else to the contrary in the Contract Documents, Owner shall have the right to recover liquidated damages, consequential damages and/or incidental damages from Contractor to the extent permitted by law and the Contract Documents.

This language in the General Conditions is an acknowledgment that obligees seek unbalanced contracts just because . . . .

7. The We’re-All-Going-to-the-Trough Award 

This prestigious award recognizes achievement in performance bond language that attempts to convert the performance bond into a sort of project insurance policy with multiple obligees, two of whom have no requirement whatsoever to assume the obligations of the owner to the contractor in order to recover under the bond:

NOW, THEREFORE, we, the Principal, and _____________________, as Surety, are held and firmly bound unto the Owner, Engineer, and Design Engineer in the penal sum of ________________________________ Dollars ($___________), lawful money of the United States, being one hundred percent (100%) of the Contract amount, for the payment of which sum well and truly to be made, we bind ourselves, our heirs, executors, administrators and successors, jointly and severally, firmly by these presents.

NASBP recognizes this performance bond language for providing that the principal and the surety are bound not only to the owner but also to the engineers for, potentially, all risks associated with errors and omissions on the part of the engineers. Sureties like assuming risks for parties with whom they have no contractual relationship; it keeps them on their toes. Readers will not be surprised that the crafty project design engineers drafted this bond language, truly in a self-satisfying manner.

I hope that you have enjoyed these very tongue-in-cheek NASBP Annual SSLAB Awards. While I had a bit of fun with this article, improper and inappropriate bond and contract language such as that found in the recipients of the above awards is a real issue in the industry.

NASBP is grateful to its Members and Affiliates who have been forwarding such documents to NASBP for advocacy assistance. NASBP drafted and sent dozens of letters this year to federal, state, and local contracting agencies and to private owners regarding bond and contract language improprieties and difficulties. We are trying to educate owners that onerous bond and contract terms will stifle competition, increase the cost of projects, and reduce the number of small and emerging contractors that are able to participate on such projects. We have had a number of successes, although there is still much work to do. I urge you to forward onerous bonds and contracts to NASBP, along with full obligee contact information, so that we may consider advocacy options.

And, remember that your bond and contract language submissions could be contenders for next year’s NASBP SSLAB Awards.

The author of this article is Martha Perkins, General Counsel at NASBP. Martha Perkins can be reached at mperkins@nasbp.org or 202.686-3700.

This article is provided to NASBP members, affiliates, and associates solely for educational and informational purposes. It is not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels, and should not act upon any information contained in this article without such advice.