Creating Our Future Legacy 

I joined our company, a regional insurance and bond agency, on May 1, 1990. On that day, I was asked to represent our company at an NASBP committee meeting in Washington, DC. In retrospect, it was the perfect initiation to the agency business because I learned of a resource that would prove to be extremely valuable to our company and my career as a surety professional – NASBP. Throughout the years, my mentor and friend, Terry Payne, has encouraged and supported active participation in NASBP’s activities. Today, as I reflect upon my year as President of NASBP and our focus on “Legacy”, my greatest hope for the future is that the leaders of our member and affiliate companies will remain dedicated to membership in NASBP, and create opportunities for the future leaders of our businesses by insisting on participation and involvement in our affairs.  NASBP’s mission is totally dependent upon such a commitment.

I have a bias towards NASBP, and the value that it provides its members, but I didn’t inherit it because previous generations in our company were active in the Association! My bias was created by my personal experiences, in which I have made an effort to get the most out of our membership through involvement. When I am asked what the value of membership in NASBP is or what is the relevancy of NASBP, I like to say, “Get involved and find out!” It is easy to do so, and provides the volunteer with true value for their efforts more often than not.

My message is intended for every reader of this note. There is room within NASBP for those that are dedicated to the ethical and professional delivery of our product! Your participation in NASBP, at the local, regional or national level enhances the perpetuation that our industry needs! I would like to ask each of you to consider some form of participation in NASBP’s activities. With greater participation on the part of our members and affiliates, we can improve the quality of our services, build knowledge of our product, engage innovative ideas and importantly, strengthen the wonderful legacy of NASBP.

Serving as President of NASBP has been a great honor, and one of my life’s greatest learning experiences. I cannot exaggerate when describing how impressed I have been by the intelligence, integrity and commitment of our membership and staff. Thank you for your guidance and hospitality during the past year!

Ed Heine

Ed Heine is Executive Vice President for the Payne Financial Group in Missoula, MT. He can be reached at  eheine@pfgworld.com.

Nothing is more near and dear to the heart of your subcontractor clients than being paid promptly for work performed. In instances where subcontractors are not paid, and a payment bond is in place, they have the obligation to bring actions against the payment bond promptly or risk having such claims be time barred. A subcontractor’s observance of the applicable statutory limitations period is critical to recover on the payment bond; and court’s generally take a pretty strict view of such requirements and enforce them accordingly.

In the case of Federal Miller Act payment bonds, the Act provides that all actions against the payment bond must be “brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action” (at 40 U.S.C.A. § 3133). Many state “Little Miller Acts” contain similar requirements. Understanding how the phrase “the day on which the last labor was performed or materials was supplied” is interpreted is important in computing correctly the beginning and ending points of the one-year period for filing the payment bond action.

A considerable body of case law has developed and continues to develop on the type of work that constitutes the last labor performed or materials supplied for purposes of the Miller Act’s one-year limitations period. In general, courts view “labor” to mean physical labor in prosecution of the work and not simply administrative tasks. Moreover, courts draw a distinction between work performed as part of completion of the original scope of the contract and incidental, remedial or warranty work. Generally, the former type of work will reset the one-year limitations period anew; the latter type of work will not. Courts must conduct a factual inquiry in each case in assessing the character of the “last” work to determine whether the work is of the type to restart the limitations period under the terms of the Miller Act payment bond.

In a recent case, Structures Unlimited, Inc. v. First National Surety Company of America, decided in the US District Court, Eastern District of California, the federal district court was confronted with this question. Here, a prime contractor, which later went bankrupt, was awarded a contract by the Navy to construct a concrete pad and enclosure over a sludge dewatering bed. The prime contractor, in turn, contracted out the installation of the enclosure, but failed to pay the subcontractor the remaining balance of its subcontract amount. The subcontractor then eventually brought an action against the payment bond. The surety sought a motion for summary judgment (a motion stating that no genuine issues of material fact were in dispute and that the surety was entitled to a judgment by law), alleging that the subcontractor’s complaint was filed more than one year from the day the subcontractor last performed labor or supplied materials. The subcontractor countered by alleging that it had not completed its work at the earlier date despite the fact that it had billed the prime contractor for the entirety of its work and that the Navy had conducted a final inspection of the work and had taken possession of the site.

The subcontractor contended that initially it had been delayed in commencing its work by the prime contractor and that the prime contractor had authorized its completion of any remaining work well after the Navy took possession. The work performed after the Navy took possession included installing laminated panels rendered damaged by the initial delay, torquing screws, caulking edges and flashing, and painting. The subcontractor also extended its warranty from the date of the installation of the laminated panels. In denying the surety’s motion, the court concluded, that when examined most favorably to the subcontractor, genuine issues remained on whether the subsequent work was required to complete the subcontract or to correct defects or make repairs under the subcontract and that these issues should be submitted to a judge or jury for decision at trial.

Your client’s understanding of the character of the last “work” performed on a project can help them generally assess whether his or her payment bond claim may be considered timely or time-barred. Nonetheless, as courts will continue to define this area of the law, claimants’ consultation with knowledgeable legal counsel about their situations is critical to ensure timely filing of actions. Ultimately, the judge or jury, as the trier of fact, will judge each case on its own set of facts.These materials are provided to NASBP members solely for educational and informational purposes. They are 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 these materials without such advice.

On February 14, 2006, the Small Business Administration (SBA) published a notice in the Federal Register, Volume 71, Number 31, at page 9632, in which it proposed to change its regulations to increase the guarantee fee charged sureties from 20% to 26% of the premium on bonds issued through the SBA Bond Guarantee Program. The notice also proposed increasing the guarantee fee payable by principals from $6.00 per thousand dollars of contract amount to $7.29 per thousand dollars of the contract amount. This notice revised a prior Federal Register notice (Volume 70, Number 156, at page 47874), published on August 15, 2005, in which the SBA proposed that sureties pay a guarantee fee of 32% of the premium on bonds issued through the Program.

NASBP submitted written comments to the SBA on both proposed guarantee fee increase notices, expressing its concern that any fee increase will act as a disincentive for surety participation in the SBA Bond Guarantee Program and will jeopardize its continued viability. In its latest written comments, forwarded to SBA on March 27, 2006 and submitted jointly with the Surety Association of America and the American Insurance Association, NASBP urged the SBA to refrain from increasing the guarantee fee charged sureties and to continue to make changes in its administration of the SBA Bond Guarantee Program beneficial to bond producer and surety participation. (Please click here to view a copy of the joint comments sent to SBA opposing the guarantee fee increase.)

NASBP also was instrumental in raising awareness of the proposed SBA guarantee fee increase in the contractor association community. NASBP efforts resulted in written comments being forwarded to SBA by the Associated General Contractors of America, the American Subcontractors Association, and the National Electrical Contractors Association, each voicing opposition to the fee increase. However, despite the surety and construction industry comments in opposition of the fee increase, the new regulations went into effect on April 3, 2006.

Partly in anticipation of the imposition by SBA of a bond guarantee fee increase, Senator Mary Landrieu (D-LA) sponsored Senate Bill 2482, known as the “Gulf Coast Open for Business Act of 2006”, which contains a section 12, entitled “Removing Barriers to Bonding for Small Businesses,” among many other sections providing various forms of relief for the Gulf Coast states. Section 12 would permit the following:

·    The SBA Administrator “shall waive any increase in guarantee fees for a surety providing guarantees related to contracts for disaster relief, recovery, or reconstruction related to the aftermath of Hurricane Katrina of 2005, Hurricane Rita of 2005, or Hurricane Wilma of 2005 under Surety Bond Guarantee Program under part B”. Such waivers would occur for a five-year period following the enactment of SB 2482.

·    The SBA Administrator “may permit a surety participating in the Preferred Surety Bond Guarantee Program…to use rates approved by the insurance commissioner in the State in which [any contract for relief, recovery, or reconstruction related to the aftermath of Hurricane Katrina of 2005, Hurricane Rita of 2005, or Hurricane Wilma of 2005] will be performed.”

·    The SBA Administrator shall report to the Senate and House Small Business Committees within 180 days of enactment and annually thereafter on the availability of bonds to small businesses performing Gulf Coast relief, recovery or reconstruction work.

Senate Bill 2482 was introduced into Congress on March 30, 2006 and referred to the Committee on Small Business and Entrepreneurship. It is currently co-sponsored by Senators Kerry (D-MA) and Bayh (D-IN). To view Senate Bill 2482 as introduced, please click here.

How often as a bond producer have you heard your contractor and subcontractor clients express the desire for the construction industry to come together and to agree on a common set of standardized documents, at least for the purpose of establishing a true industry-accepted baseline for the commencement of contract negotiations? If NASBP has its way, such sentiments may no longer have to be voiced. NASBP and eight other prominent industry organizations are exploring the possibility of creating a separate, non-partisan, industry-recognized entity to promulgate an equitable, inclusive process and a permanent “home” for the industry to work out its risk allocation and contracting issues.

Obviously, this is no simple feat, so such an effort requires a broad, initial coalition of industry constituencies to make it work. Besides NASBP, the other organizations engaged in this effort are the Construction Users Roundtable (CURT), the Construction Owners Association of America (COAA), the National Association of State Facilities Administrators (NASFA), the Associated General Contractors of America (AGC), the Design-Build Institute of America (DBIA), the Associated Specialty Contractors, Inc. (ASC)―an umbrella group of nine trade contractor groups, the American Subcontractors Association (ASA), and the Surety Association of America (SAA), organizations collectively representing public and private owners, design professionals, contractors, specialty contractors, bond producers and sureties. The idea behind creating this new “home” is that efforts to develop “industry standard” documents should not be resident in one trade or professional association, but should be a collective industry enterprise in which all trade and professional associations would be encouraged and could choose to participate actively. Spurring this effort further is each organization’s realization that the current, growing litany of competing industry standard form families, sometimes confusing in intent and conflicting in purpose, no longer seems to benefit the industry or its productivity as a whole.

Over the past one and one half years, NASBP, along with the other organizations mentioned, have been meeting regularly in a united effort to map out the structure for a separate, non-partisan entity and the development process for a new generation of industry forms that would have the participation and buy-in of these and other interested organizations.

Each organization is quick to make the point that this is an inclusive, not exclusive, effort. “We want every and any organization interested in the process to join in the effort,” states DBIA Past President, Dave Crawford, Sundt Construction, Inc., Tempe, AZ. He states, “our effort centers on providing a central destination to focus industry-wide efforts and to identify best practices in contracting, and we collectively believe that our organizations can make a better business environment through meaningful, sustained collaboration on these issues.” The intent of the new entity is to be structured in such a way as to permit any interested organization to participate at the level of commitment and activity of its choosing.

Recent meetings of these organizations have centered on two fronts: creating a business model and implementing structure for the new entity, likely in the form of a limited liability company, whose members would be non-profit industry associations, and developing the process of drafting new sets of contract documents eventually to supplant the existing sets of member organizations’ documents. Significant progress is being made on both fronts.

Bill Ernstrom, an AGC representative to the effort and General Counsel and Senior Vice President of Alberici Corporation, St. Louis, MO, remarks, “there is nothing more powerful for reaching agreement than a process that forces you to roll up your sleeves and tackle tough issues face-to-face.” He adds, “we been successful thus far because there are no guests at this table, each organization comes as an equal and expected contributor to the process.”

Planned for commencement of operations by April 2007, CICC is an ambitious project with an equally ambitious timeline for critical start-up milestones. “Actions may speak louder than words, but in this effort, neither will be separated from the other,” says Ernstrom. “Our words—that is, a new generation of industry-accepted forms―will demonstrate our actions and commitment.”

“The effort towards progress in any industry sometimes requires decisive steps,” relates CURT President Tom Weise, Intel Corporation, “if we are to make productivity gains in this industry, we, as an industry, must act in concert, not in piecemeal fashion, to achieve our aims.” NASBP President Ed Heine, Payne Financial Group, Inc., Missoula, MT, adds, “I am in complete support of this effort to better the risk climate of the construction industry; we must encourage all industry organizations to get involved.”

CICC Needs Your Help to Gather Information!

The organizations comprising the Construction Industry Contracts Council (CICC) are undertaking a joint effort to gather views on and information about standard form document use and purchasing behavior by construction industry project participants. NASBP members can play a significant role in encouraging their contractor and subcontractor clients to go to the link provided below and to take the brief survey. Responses will be kept confidential and will provide CICC with needed insight and information to ensure that its efforts will be meaningful for the industry. All responses are requested by May 2, 2006.

To access the survey, please click the link below, or copy and paste the entire link into your web browser.

http://www.magnetmail.net/forms/verify_web_form.cfm?fid=%24%22%40GVB%40%20%20%0A&rtype=%254U%2A%40TDH%20%0A

·          Department of the Treasury’s Listing of Approved Sureties as of July 1, 2005 has been updated to reflect the name change and redomestication of National Grange Mutual Insurance Company (NAIC# 14788). National Grange Mutual Insurance Company changed its name to NGM Insurance Company effective October 27, 2005 and redomesticated from New Hampshire to Florida effective June 6, 2005.

·          Department of the Treasury’s Listing of Approved Sureties has been updated to certify NATIONS BONDING COMPANY(NAIC #11595), effective 02/09/06.

See: http://fms.treas.gov/c570/c570.html and http://fms.treas.gov/c570/supplements.html