May 2003

2003 Annual Meeting and Expo Highlights

You weren’t there—couldn’t make it…or you were there and want to relive the memories?  In either case, visit http://www.nasbp.org/2003amphotos.htm to view the photos and capture the “essence” of the NASBP Annual Meeting at the La Quinta Resort & Spa in La Quinta, California.

To insure you’ll be there next year, mark your calendars now for April 25-28 when the 2004 Annual Meeting will take place at the Marco Island Marriott and Golf Club at Marco Island, FL.

NASBP’s Delivers 4th Expo to Annual Meeting Attendees

Once again, NASBP offered Annual Meeting attendees a venue for meeting with the premier vendors of industry-related products and services, as well as the opportunity to see first-hand what new products and services are available to them and their contractor-clients.

The fourth expo in as many years drew good reviews from both meeting attendees and the exhibiting companies.  Responses from meeting attendees indicate the Expo continues to add value to the annual meeting and provides meeting attendees with an opportunity to “shop” products and services in one convenient location.

To find out more about the exhibitors and their products and services, please visit our Web site at http://www.nasbp.org/2003exhibitors.cfm.

Two More States Enact Anti-Directed Surety Legislation 

Legislation prohibiting directed suretyship in Montana (S 229) and New Mexico (S 180) was recently signed into law by their respective Governors.  As with other states passing similar or identical legislation the last three years, the Montana and New Mexico bills had no opposition and were approved unanimously on every vote throughout the legislative process.  Ed Heine and Jonathan Emmons in Montana and Tom Padilla in New Mexico are to be congratulated for heading up their states’ efforts and seeing these bills to enactment.  They secured excellent sponsors to shepherd the bills through the process, which was even more difficult this year because of other competing measures under consideration by the legislatures.  The enactment of these laws mean that 36 states now have laws expressly prohibiting directed suretyship.

Meanwhile in Missouri, legislation was introduced to clarify that state’s directed surety prohibition and ensure it would hold up in court.  Don Ardolino and his team successfully lead the legislation through both chambers, and it is now awaiting the Governor’s signature.

A West Virginia bill (HB 3150) to prohibit directed surety passed the House but time ran out before the bill could be heard in the Senate before the Legislature adjourned.  The bill had no opposition but was introduced late in the session.  Tony Stanchina will work to have this legislation considered again next year.  North Carolina and New Jersey are the only other states that have bills of this nature still pending this year.

President’s Message

Wow!  What a convention!  From Steve Forbes to “President Bush,” the 61^st Annual Meeting should be recorded as one of the best.  Keith Brown and his committee did an outstanding job putting together a program that benefited all.  Once again the Expo, led by John Adams and assisted by Susan DeCourcey at Headquarters, brought us the best in products and services.  The attendees and our generous affiliate sponsors made it possible.

My first article for Pipeline is a recap of the remarks I made as incoming President.  Each new President is let off easy the first month by getting the opportunity to reprint his speech.  Some soft market habits die hard!  I’m taking the path of least resistance!  In case you missed it . . . .

I’d like to start my year as President by offering my personal thanks to Brian for his year in service as President.  He set the tone at last year’s annual meeting with his opening remarks.  His thoughts and vision for our association proved timelier than even he probably foresaw.

For almost three years I’ve thought about what I was going to say when beginning my presidency, playing out grand speeches over and over again in my head, rousing each of you to thunderous applause and unparalleled service.  But when it came time to actually write this thing, I quickly realized that it’s a lot harder than it looks.

Is there anything we all can agree on, moving forward for the benefit of our industry and association?  How can all of us continue to improve the programs, plans, and visions of past leadership?  What can be said (or written) that will set the tone for the upcoming year?

People have asked me over the past year what my “Theme” was going to be.  Many of you have heard me jokingly say, “Well, I thought about ‘Can’t we all just get along?’ or ‘If less is more, just think how much more more would be’”.

One thing years of association service, marriage, and parenthood have taught me is that you can’t please everyone.  The other thing that I’ve learned along the way is, “It’s worth the try!”

In David McCullough’s Pulitzer Prize winning biography of John Adams, he writes about an often-used line that both John Adams and George Washington used in correspondence during the Revolutionary War.  The line was paraphrased from a popular play of that era, Joseph Addison’s Cato, stating, “We cannot insure success, but we can deserve it.”

Our industry has taken some pretty hard hits over the past few years.  We all know about the numbers.  There’s no need to repeat any of that here.  What has traditionally been known as a ‘profitable’ and ‘stable’ class of business unfortunately is becoming thought of as a ‘loser’.  Market consolidations, mergers, acquisitions, and withdrawal on both the retail and reinsurance levels drive this point home.

But the hard hits go well past the numbers.  They strike at the very core of our business.  The hard hits I’m referring to are the perceptions that the surety product adds little or no value, is a waste of money, and is non-responsive.  When I think about our industry as a whole and look toward the future, I don’t necessarily see the foregone conclusion that surety as we know it will remain intact.

Well . . . I certainly don’t know how to insure the success of our industry.  But I do think that a first step is for us to deserve success!  How can we deserve success?

I think it starts with every one of us and the manner in which we conduct our businesses.

In the Association’s By-Laws, the Professional Standards Committee is a standing committee.  This committee’s role is not to function as a “wrist-slapper” or “complaint box’” for our members.  I’ve asked John Bustard, from King & Neel in Honolulu, to chair this committee next year.  I’m asking John and his committee to review our Code of Professional Standards and do what’s necessary to communicate to our leadership, our members, our committees, affiliates, and, especially, interested outside constituents, the level of professionalism our members are expected to follow in conducting their business.  I believe that bar should be set high.  I would hope that as an NASBP member you would want it that way also.

We can deserve success by the manner in which we conduct our business.

As most of you know, my service to this association mainly has been centered around educational efforts, from attending my first surety school in 1986 to teaching at our school for some thirteen years.  I believe our educational efforts need to continue down their current path.  Our Professional Development and Education Committee, chaired by Tom Padilla from Manuel Lujan in Albuquerque, consists of some very dedicated and hard working people. But it’s time to broaden our horizons and include educational opportunities to interested outside parties.

People rarely purchase what they don’t want or understand.  The same can be said about surety bonds.  We can’t expect the private sector to continue to use our product if we don’t educate them as to the role and value of the surety product.  And folks, when I say we, I mean everyone.

Furthermore, I believe we should direct some educational efforts to the public sector as well.  My experience in meetings as an NASBP officer with various government officials from various agencies is alarming.  For the most part, our product is viewed as little more than another item on a government checklist of paperwork to obtain and keep in a file.

I’m talking about outreach in the form of education to the public sector–federal, state and local policymakers, and all levels of contracting officials–as to what our product is, what it does, the value it adds and the services that stand behind it.  Such outreach, I believe, will result in long term benefits for the viability of our product and protection of the Miller Act.

We can deserve success through education.

Many of you have heard me say over the past year or so that if this association wants to be known as the “Go To” people when questions arise about surety, then we in turn have to “Go To” people.

The outreach efforts with our construction industry partners, which have been rekindled over the past few years, will continue.  Our liaison efforts with AGC have already positioned NASBP in good stead.  Todd Loehnert, who has chaired our Construction Industry Committee, Bob Fricke, who will chair the committee next year, along with many others, have been heavily involved in keeping that relationship open and moving forward.  AGC, however, is only one group of constituents.

Your officers and leaders as well as Headquarters staff, will work hard all year to take advantage of opportunities to “Go To” people.  Outreach efforts will be made to various constituency groups, offering NASBP leaders, members, and affiliates as resources for surety information and knowledge.

No one person can do this alone; not me, not Craig, Ed or Steve; not Bob nor his committee vice-chairs and members.  We all need to participate in being positive advocates wherever and whenever opportunities arise.

We can deserve success through outreach.

Sounds simple doesn’t it?  If only it were that easy to fix.  Well . . . it’s a start!  In fact, it’s not really a start.  It’s a continuation.

Thirty six states!  36!  That’s how many states now have laws on their books prohibiting directed suretyship.  An amazing effort in just two years by our Government Affairs Committee, chaired by Mike Gilroy with assistance from Connie Lynch and Colin Chiles at Headquarters.

I had the opportunity to attend the very first Level 3 educational offering last November in Houston.  I went solely as a student, no ribbons, paid full tuition.  I think it could be the best educational effort this association has put forth yet!  Phenomenal!  Tom’s committee, assisted by Susan Ostrander in Washington, continues to lead this industry in quality educational offerings.

It’s amazing how many changes in this industry we have witnessed and experienced in the past two decades or so.  You may find this hard to believe, but I have found one constant.  In July of this year, Koula Korson will celebrate her 25^th anniversary with NASBP.  That’s downright fantastic, and as the new President, comforting too!  Congratulations Koula!

I wish I had the time to brag on and outline the contributions of each person on our staff.  All I’ll say for now is that Susan and I are looking forward to working with this fun and dedicated group of professionals next year.

This association is made up of some the finest people I’ve ever had a chance to meet.  Not just business associates and acquaintances or fellow members, not just professional national staff, but friends from all over the country, friends who know a lot more about this business than I do, people who I’ve shared countless experiences with over the years (from missed boat rides in the gulf, train rides we wished we would have missed in the high desert, to an obnoxious, nylon, burnt orange ‘hook ‘em horns’ tie).

I know that with the wisdom and talent of our members and affiliates, of you, the future of this industry is much brighter than I have given it credit.  In fact, the future of this industry looks pretty exciting!  But only if each of us will commit today to do more than just attend a meeting.  Serve on a committee (Government Affairs, Automation and Technology, Commercial Surety, Education, Pubic Relations, Finance), contribute to SuretyPac, write a letter to your Member of Congress when needed, speak at your local AGC or ABC luncheon about the positive role and value bonds have played for decades.  Do something!

As we continue to go about our regular roles, either production or underwriting, member or affiliate, we can make a difference.  And by making that difference, “We can deserve success!”

Matthew K. “Matt” Cashion, Jr. is Secretary/Treasurer of The Cashion Company, Inc. in Little Rock, AR.  He can be reached at Mattc@cashionco.com.

Also In This Issue

From NASBP’s General Counsel: What’s A Surety’s Obligation When A Contract Changes?

It is common for performance bonds issued today to contain language under which the surety waives notice of changes to the general contractor’s contract.  The use of this language was a response to court decisions many years ago in which sureties obtained a discharge of their bond obligations because changes were made to a bonded project after the bond had been issued.  Sureties argued that changes to a contract without the surety’s consent resulted in a changed contract that the surety never agreed to bond.

To meet the expectations of owners, who had no desire to obtain the surety’s consent  every time a change was made to the project but expected the bond to provide protection, sureties began including language that waives notice of changes.  The surety’s prospective consent to changes on a bonded project severely limit a defense based on changes to a contract.  This prospective consent, however, does not completely destroy a surety’s defense to liability on a performance  bond where profound changes to a contract are made without notice to the surety.  In those rare circumstances in which changes to a project are so profound that the very nature of the project changes, a surety may still avoid liability on its bond if it was not notified of those changes.

There is a long history of court decisions in which courts have had to decide when a contract changed so significantly that the surety no longer had to honor its performance bond.  This circumstance is generally referred to as a “cardinal change.”  A cardinal change, generally, is a change that  the parties (and surety) could not have reasonably anticipated as being within the scope of the work when the contract began. The item of greatest importance in influencing a court’s decision-making is not the cost of the changes made to a project or whether the contract amount increased by a certain percentage.  In fact, there are court decisions in which courts have refused to find a cardinal change even when the amount of the contract more than doubled on grounds that the type of work comprising the changes was of the type the parties should have anticipated from the beginning of the contract.

Instead, the most important item is whether the changes to the contract exceed the scope of the work anticipated at the beginning of the contract.  An example of such a change is found in Employer’s Ins. Of Wausau v. Const. Mgmt. Engs., 377 S.E. 2d 119 (S.C. App. 1989).  In this case a subcontractor with a $2.3MM contract reached an agreement with the owner during construction to take over the work of the general contractor after the general contractor left the project.  As a result, the subcontractor assumed responsibility for a $6.2MM contract that  included the subcontractor’s original scope of work and all of the other work on the project.  When the owner initiated a lawsuit against the surety that wrote the subcontractor’s performance bond,  the surety defended the claim by asserting that the change in the subcontractor’s scope of work discharged the surety, because the surety never agreed to bond the job that the subcontractor undertook to perform.  The court held that this change was so substantial as to discharge the surety from its original bond.

In another case, a surety was discharged on a project  that was changed from a warehouse to a hospital.  American Druggists Ins. V. Thompson Lumber, Co., 349 N.W.2d 569 (Minn. App. 1984).  In both cases, the courts focused on the qualitative changes in the projects and not the amount of the contracts at issue.  A surety asking a court to find a cardinal change will always bear the burden of proving the existence of a substantial, qualitative change, and that the surety suffered prejudice as a result.  Implicit in this is a requirement that the surety demonstrate that it would not have bonded the changed project.

The cardinal change doctrine still exists as a theory under which a surety’s obligation under a bond may be discharged, but only in rare circumstances.   A prudent contractor seeking to preserve a valid bond on a changing project should take steps to inform the surety of significant changes in the work.  Although  the contractor should provide notice of changes that  increase the cost of its work, special attention should be given  to notifying the surety of any changes that  qualitatively change the work.

NASBP’s General Counsel is Susan McGreevy of Husch & Eppenberger LC, Kansas City, MO.

Mark Your Calendars NOW for NASBP’s 2003 Regional Meetings!

REGIONS 1, 2, 3
Hyatt Regency Lake Tahoe
Incline Village, NV
(775)832-1234
September 11 – 14, 2003
REGIONS 4, 5, 6, 7
Grand Geneva Resort & Spa
Lake Geneva, WI
(262) 248-8811
August 14 – 17, 2003

REGIONS 8, 9, 10, 11
Grand Floridian Resort & Spa
Lake Buena Vista, FL
(407) 824-3000
July 24 – 27, 2003

More details and meeting registration will be available on NASBP’s Web site in the near future.

Electronic Reverse Auction Bidding or ERAB:  What is it?

Legislation permitting electronic reverse auction bidding (ERAB) is being considered in Minnesota this year.  Until it was amended and the requirement eliminated, an Arizona bill required ERAB for Department of Education projects. (See related story, “Snippets from the States”).

Although originally designed to accommodate the procurement of construction goods, ERAB is now being considered and, in some instances, used in the bidding for construction services.

According to a white paper, Analysis of Reverse Auction Bidding, which was prepared for the Construction Industry Cooperative Council of Minnesota by Dean B. Thomson, Esq., et al,

 

Reverse auction bidding (RAB) is a process in which a buyer of goods and services continues to solicit bids from sellers until the buyer is satisfied it has received an acceptably low price. As used in construction, the process usually entails using a dedicated Internet web site. At a scheduled time, the bidding for a project opens and all interested bidders submit their prices to the web site. The host web site then posts the prices on the site for all bidders to see. The bidders’ identities usually remain anonymous.  Bidders are then given a certain period in which to offer any lower price that they may choose to submit. Thus, the auction proceeds in the “reverse” of a typical auction in that bids are expected to go down rather than up. Once no further bids are received after a certain period following the receipt and posting of the last bid, the auction is closed. Award is then made to the lowest bidder.

 

Reverse auction bidding differs from traditional sealed bidding in which sealed bids are received and opened at a specified time and the project is awarded to the lowest responsible bidder. Under the traditional method, general contractors submit their bids, or pre-selected general contractors solicit bids from subcontractors, and there is no opportunity for subsequent bidding after the specified time for bid opening.

Like many associations, NASBP does not have a formal policy on ERAB.  Given the amount of interest in this practice, however, a subcommittee of the Construction Industry Committee has been formed to study the issue and make recommendations to the Board of Directors for consideration at its mid-year meeting later this year.

If you are familiar with ERAB and/or have experiences or opinions to share with the subcommittee when it begins discussing this issue in June, please contact Robert C. Fricke, Frank Siddons Insurance, Inc., at bfricke@txhwy.com, or Connie Lynch, NASBP Headquarters, at clynch@nasbp.org.

Claims Handling, ERAB, Threshold Increases, and More:  Snippets from the States

Handling Surety Claims

A bill in LA (HB 941), calling for prescribed procedures in the handling of surety claims, was amended to require the surety to respond within 30 days after the DOT notified the surety of a default.  The bills as introduced called for 15 days.  Status:  Passed House, under consideration by a Senate Committee.   

Electronic Reverse Auction Bidding (ERAB)

A MN appropriations bill (HB 627) was recently amended to include a provision permitting ERAB in the bidding of construction services.  MN contractors are opposing the reverse auction practice.  NASBP urged members and affiliates to coordinate their efforts with clients and state AGC, ABC, and ASA chapters.  Status:  In Conference Committee.  

An Arizona bill (HB 2376) was introduced allowing electronic bidding and the use of reverse auctions in Department of Education bidding. The bill was amended to remove construction services from the ERAB process.  Status:  Signed by Governor 5/9/03

Annual Increase of Bond Thresholds

Several states have considered legislation to incrementally increase bond thresholds each year.  Most follow a plan to adjust thresholds according to a certain formula or index.

A California bill (AB 229) would require the Superintendent of Public Instruction to raise the threshold from $15,000 to $50,000 and thereafter on an annual basis beginning 1/1/04.  Status:  In Assembly Committee

Bills in Florida (HB 259/SB1332) would have increased bond thresholds from $100,000 to $250,000 for state construction projects and increased the threshold for city, county, political subdivision, or public authority projects from $200,000 to $500,000.  Status:  Both bills died in committee.

A New York bill (SB 3363) increases the base amount for contracts requiring performance and payment bonds to an aggregate amount.  It then requires the Comptroller to adjust this amount annually by adding to the previous one-year aggregate amount an amount equal to the aggregate amount multiplied by such year’s consumer price index.  Status:  In committee

A bill in Tennessee (SB 142), which ultimately died in committee, called for incrementally increasing the present bonding threshold ($100,00) on public works contracts on July 1 of each year, to be based upon the calendar year change for the previous calendar year in the consumer price index as published by the United States bureau of labor statistics.

Mandatory State Bond Form

Bills in Florida (HB 485/SB 1986) would have required a mandatory bond form for public construction projects.  This bill was introduced on behalf of the Florida Surety Association to correct problems that have occurred when different jurisdictions have created and required their own bond forms.  Status:  Passed Senate; Died on House Calendar

Prequalification

A Connecticut bill (SB 339) required contractors to be prequalified with the Commissioner of Public Works to bid on state contracts.  Status:  Failed Joint Favorable Deadline

A Florida bill (HB 1373) allowed local governments to require prequalification for transportation facilities construction.  It provided a presumption of eligibility for contractors prequalified by the DOT and required publication of criteria and procedures for prequalification prior to advertisement or notice of solicitation on a project.  Status:  Passed House; Died in Senate Committee

Mississippi enacted legislation (SB 2814) giving the MS Transportation Commission the option to require prequalification of bidders and adopt rules and regulations for terminating contracts with contractors who are not proceeding toward timely completion of projects.

Retainage

An Indiana bill (HB 1184) was designed to reduce retainage withheld by state agencies for public works contacts to either 5% (until the public work was 50% complete and nothing further after that), or 2.5% (until the public work was substantially complete).  Status:  Passed House but died in Senate Committee upon adjournment.

A bill in Maine (HB 119) would have allowed public owners to retain 5% due contractors until substantial completion.  At substantial completion, an inspection would have to take place and a punch list prepared.  After the inspection, the owner could withhold for defective or incomplete work only those funds sufficient to account for 1.5 times the value of the work on the punch list.  As the punch list work was completed, the retainage held by the owner would have to be reduced correspondently. Status:  Died in Committee

A Maryland bill (HB 371) calls for limiting the retainage held by a public body to 10% until the project reaches 50% completion.  At the halfway point of completion, the public body may only withhold 5% unless it can demonstrate the need to withhold more.  The bill prevents contractors from withholding money from a sub and subs from withholding money from lower tier subs to an amount not greater than the percentage being withheld by the public body or the contractor.  Status:  Signed by Governor

In North Carolina, HB 1146 authorizes the Secretary of the Department of Administration to study retainage on public construction projects, then adopt rules on retainage for state agencies and the UNC and community college systems and guidelines for local government units engaged in public construction.  Status:  Passed House; In Senate Committee

Small, Minority Contractors

A Colorado bill (HB 1052) that died in Committee would have created a program to provide technical assistance to small businesses trying to obtain surety bonds.  Status:  Died in Committee

In Hawaii, SB 507 would have created a program to provide technical assistance to small business trying to obtain bonds and allow the state to contract with insurance companies, surety companies, producers, or brokers to implement the program.  Status:  Legislature adjourned; Carried over to next year.   

This is not a comprehensive list of all the important bills considered by state legislatures.  Look for more state snippets in subsequent issues of Pipeline or access updates on current legislative activity by visiting the “Member and Affiliates Only” section of the NASBP Web site at http://www.nasbp.org/membersonly_files/memlogin.cfm.  Login and click on “Government Relations” and then on “Bill Tracking 2003.”  When asked for your User ID and Password, simply enter the same information used to access the “Member and Affiliates Only” section.  Instructions on how to use the service are provided on the Web page.

NASBP’s Level I Surety School

Don’t miss your chance to register for the last Level I William J. Angell Surety School of the year, which will take place August 6-9 in Dallas, TX.   To review the brochure for curriculum information and for registration please visit http://www.nasbp.org/school.cfm.  Register soon because space is limited.

NASBP’s 2003 Excellence in Advocacy Award

At its 61^st annual meeting, NASBP announced this year’s recipient of its esteemed award for excellence in advocacy.  The California Surety Federation, headquartered in Sacramento, received the Excellence in Advocacy Award for its skillful application of advocacy techniques in representing all surety professionals in California.  Paul Gladfelty, Executive Director of the California Surety Federation, accepted the award.

For the past 14 years, the California Surety Federation has been representing surety producers, brokers, and carriers that do business in California.  The California Surety Federation’s primary mission is to serve as a pro-active legislative and regulatory advocacy organization for California surety professionals.  It also serves as an information resource for its members and public officials.

NASBP Welcomes Eight New Members and One New Affiliate

NASBP welcomes the following new members and affiliate who have joined the Association since the last issue of Pipeline:

NEW MEMBERS

NASBP Welcomes New Members and Affiliate

NASBP welcomes the following new members and affiliate who have joined the Association since the last issue of Pipeline:

NEW MEMBERS

Surety Associates, LLC                           The Forker Company
195 Scott Swamp Road                             1555 N. River Center Drive
Farmington, CT 06032                               Milwaukee, WI 53212
Key Contact:  Geraldine Longo                    Key Contact:  Peter S. Forker
Aon Risk Services                                   Guy, Hurley, Blaser & Heuer, LLC
1901 Main Street, Suite 300                       1080 Kirts Blvd, Suite 500
Irvine, CA 92614                                       Troy, MI 48084
Key Contact:  Michael D. Parizino                 Key Contact:  Thomas R. Guy, CIC
Arthur J. Gallagher & Co.-Kansas City      Texas Specialty Insurance Agency
2345 Grand Blvd., Suite 800                       5847 San Felipe, Suite 2750
Kansas City, MO 64108                              Houston, TX 77057
Key Contact:  Michael D. Whipps                 Key Contact:  Dan W. Burton
Rich & Cartmill, Inc.                               The James B. Oswald Company
2738 E. 51st St., Suite 400                       1360 East 9th Street
Tulsa, OK 74105                                      Cleveland, OH 44114
Key Contact:  Steve Poleman                     Key Contact:  Mark Rader

NEW AFFILIATE

ACE Tempest Re USA, Inc.
281 Tresser Boulevard
Stamford, CT 06901
Key Contact:  Jeffrey M. Ryan

For more details on these new additions to NASBP, go to NASBP’s online membership directory, http://www.nasbp.org/bond.cfm.

Briefly Noted

PASSING                                                                                                                                                    With sadness we report the death of Robert M. McKenna, NASBP’s 35^th President, who served the Association as its chief elected officer in 1979-80.  He died at home on April 16^th.  A graduate of Lake Forest College, Bob served in the U.S. Army during World War II in the European Theater.  In 1952, he moved from Milwaukee to Green Bay to join the Murphy Insurance Agency. Bob was the company’s President from 1966 to 1972, when he directed the firm’s merger with Alexander and Alexander (now Aon), and then the office’s managing Vice President until his retirement in 1985.  He is survived by his wife of almost 56 years, Virginia, their six children and their spouses, 25 grandchildren, one great-grandchild, and one brother Vince McKenna. In lieu of gifts of sympathy, a memorial fund has been established for an educational scholarship fund; for more information about the fund, please contact Bob’s son-in-law, Jeffrey Meisinger, of AON Risk Services of WI, at Jeff_Meisinger@ars.aon.com or 920/431-6230.

HONORS                                                                                                                         AGC of California recently honored NASBP Member, Kenneth A. Coate of Inland Surety Bonds and Insurance Services in Riverside, CA.  Ken is the 2003 recipient of the chapter’s prestigious Associate Achievement Award, which is given to a member “whose tireless commitment and dedication to the association and the industry sets them head and shoulders above their peers.”  In announcing the award, the chapter reported,  “Dedication and a commitment to make AGC of California a better association for its members have distinguished the efforts of Associate member Ken Coate during his years of involvement with AGC and throughout his service to the construction industry and in his local community.”  In addition to his AGC and community involvement, Ken is an active member of NASBP’s grassroots lobbying network.

POSITIONS                                                                                                                    NAS Surety Group/Washington International, specializing in serving small-medium sized contractors, is currently seeking an experienced Territorial Surety representative for its Atlanta branch office. The successful candidate will have strong contract underwriting and marketing skills.  Requirements include:  A bachelor’s degree in a business-related field; strong PC skills with proficiency in Excel and Word; excellent interpersonal and communication skills; and the ability to travel. The underwriting territory is SE United States.  Relocation is accepted. Candidates should forward their resumes, including salary requirements, to: Human Resources, NAS Surety Group; 1200 Arlington Heights Road, Ste 400; Itasca, IL  0143; by Fax to 630-227-4715 or E-mail to judith_gazaway@nassurety.com.  For further information about NAS, visit its website at www.nassurety.com

St. Paul Surety announces two employment opportunities:

Surety Underwriting Specialist for the Sacramento, CA office: Responsibilities:  Markets, underwrites, and services contract and commercial products; performs agency management and relationship building along with product marketing functions; handles small to large, complex contract and commercial surety risks; provides some direction to support staff.  Requirements:  College degree or equivalent; minimum of 2 yrs surety underwriting experience; advance understanding of risk selection, basic construction knowledge, financial analysis, rating and exposure analysis; proven ability to effectively build relationships, communicate, solve problems, work with others, and present to groups; strong PC software skills. This position requires a dynamic, engaging personality. For immediate consideration, please apply on-line at www.stpaul.com.  This opening is listed as U/W Specialist, and once the job posting is opened, it will reference requisition #015836. Some relocation assistance is available. EOE

Underwriting Support Specialist for the Baltimore, MD office:                                      Responsibilities:  Using preestablished rules and procedures, initiates the underwriting and processing duties for new and renewal business, communicates underwriting decisions within authority, and resolves customer issues related to underwriting, coverage and rates. May train others and/or coordinate workflow.  Requirements: Spanish proficiency is preferred; high school education or equivalent; minimum of 2-4 yrs of related insurance experience with sufficient knowledge of lines of business to process new or renewal policies that meet all parameters established by underwriters, including procedural knowledge of basic insurance selection, coverage, reinsurance, and pricing exposure to perform job tasks; effective communication and interpersonal skills, customer service orientation, and professionalism to assist customers; requires PC Skills and knowledge of systems used by the business line(s).  For immediate consideration, apply on-line at www.stpaul.com. This position is listed as U/W Support Specialist, and once the job posting is opened, it will reference requisition #016189.  EOE

The Insco/Dico Group needs an experienced candidate for the position of  Sr. Claims Examiner for its corporate office in Irvine, California.  Requirements:  Minimum of 5 yrs experience in handling all phases of surety claims including contract, performance/payment, license & permit bonds; strong organizational, communication, analytical, & PC skills (MS Word, Excel); experience with legal research & B.A. in business or related field are highly preferred.  For immediate consideration, please send resume w/salary requirements to The Insco/Dico Group, HR; P.O. Box 19725; Irvine, CA 92623; or Fax to (949) 833-3642, or e-mail to: HR@inscodico.com.  For more information, please visit the company’s Web site at www.inscodico.com. EOE.

Chubb Corporation is currently seeking a Surety Underwriter for its home office in Warren, NJ.  Responsibilities:  Underwriting and producing new business and underwriting renewals in assigned territory in accordance with established underwriting guidelines; make prompt and decisive recommendations regarding underwriting issues; collaborate with home office in providing prompt, reliable service to agents, accounts, and obliges; maintain complete and well documented account files.  Requirements:  Must possess 3-5 years Surety underwriting experience; excellent communication skills (both oral and written); excellent teamwork and collaboration   Skills; demonstrate the ability to build relationships, work in a team environment and make sound judgments and decisions. For fastest consideration, please e-mail your resume to cbinternet-wto@chubb.com in .doc  or .txt format.  Please reference job code AA7596.  For further information about Chubb, visit its Web site at www.chubb.com.

McQueary Henry Bowles Troy, LLP, a well-established regional bond and insurance broker is currently seeking an experienced Bond Account Manager or Assistant Bond Account Manager for its main office in Dallas, TX. Responsibilities:  Using established agency procedures, the basic responsibilities include, but are not limited to:  Servicing numerous agency construction and commercial bond clients with processing of bid, performance, payment, maintenance, license and permit, and commercial bonds; processing of continuation certificates, bond renewals, dividends, claims, bid results, and closing project files, as well as general clerical functions; communicating with agency/production, client, and surety company personal to resolve customer service issues related to underwriting, and miscellaneous day-to-day operations.  Requirements:  High School Diploma or equivalent; 2–4 yrs of related bond experience a plus; working knowledge of AMS/Sagitta, Word, Excel, Microsoft Outlook, Erlon, and various lines of surety are advantageous but not required; ability to organize, prioritize, adjust to changing priorities, and work within a team environment; customer service oriented, effective communication and interpersonal skills.   Candidates should forward their resumes, including salary requirements, to:  Donnie Doan, Bond Department Manager, McQueary Henry Bowles Troy, L.L.P., 12700 Park Central Dr., Suite 1700, Dallas, TX 75251; by Fax to (972) 770-1699 or e-mail to Donnie_doan@mhbt.com.  For further information about MHBT, visit its website at www.mhbt.com.

NASBP Offers New Power Point Presentation: What Subcontractors Should Know About Default Insurance.

In response to requests from NASBP members and affiliates for additional information on what default insurance means to subcontractors, NASBP has produced a new PowerPoint presentation on the subject, which is directed to solely to subcontractors.  It is available as an educational tool for members and affiliates to use with individual subcontractor customers or as a presentation to subcontractor associations.  The availability of this presentation via NASBP members and affiliates was recently announced at the Annual Meeting of the American Subcontractors Association.

To view a copy of this and the other power point presentations on default insurance, go to the Members and Affiliates Only Section of NASBP’s Web site; click on the Government Relations page and the link to the Alternative Products Technical Assistance Materials. A link to the PowerPoint Presentations is provided.   http://www.nasbp.org/membersonly_files/memlogin

What’s Up on the Hill? Congress Considers Contractor Bills

 H.R. 1215, Prompt Payment Improvement Act of 2003 (Sponsor:  A. Wynn/MD-4)

• Requires federal agencies to provide certain prompt payment information to federal contractors and subcontractors.

• Requires Director, Office of Management and Budget, to establish written prompt payment policy applicable to subcontractors working under federal contracts

• Requires head of each agency to provide copy of policy to each contractor, and require each contractor to provide a copy to each subcontractor

H.R. 1217, Subcontractor Protection Act (Sponsor: A. Wynn/MD-4)

• Amends Section 8(d) of the Small Business Act
• Instructs agencies to penalize federal contractors who fail to subcontract with small businesses as described in their subcontracting plan

H.R. 1348, Construction Quality Assurance Act of 2003 (Sponsor P. Kanjorski/PA-11)

• Prohibits bid shopping among the federal government, contractors, and subcontractors
• Requires that invitations for bids or requests for proposal include a clause prohibiting bid shopping and specifying penalties for engaging in the practice

H.R. 1837, The Services Acquisition Reform Act of 2003 (Sponsor: T. Davis/VA-11)

=   Amends the Office of Federal Procurement Policy Act (41 U.S.C. 403) by adding a definition of acquisition that includes “services (including construction),” thereby, expanding the scope of contracts deemed commercial item contracts to include non-commercial items and services and the use of FAR Part 12 under certain circumstances

=   Appears to provide statutory authority for the General Services Administration to make its desired changes in the contracting for construction services to increase the responsibilities of contracting officers on Federal projects and permit greater flexibility

=   Requires each agency to have a chief acquisition officer who is a non-career Federal employee, i.e., a political appointee

S. 633, Small Business Federal Contractor Safeguard Act (Sponsor: J. Kerry/MA)

• Amends requirements in Small Business Act and indicates that to the greatest practicable extent, federal procurement practices should facilitate the maximum participation of small businesses

Announced but not yet introduced:  The Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2003 (SAFETEA)

• Bush Administration’s proposal for reauthorizing the Transportation Equity Act of the 21^st Century (TEA-21)
• Transportation Secretary Norman Mineta announced the proposal on May 14, 2003
• Consists of six-year $247 billion federal surface transportation program
• Would raise federal spending for the highway program from $29.3 billion in 2004 to $33.9 billion in 2009 and the transit program from $7.2 billion in 2004 to 8.1 in 2009; however, the current highway program investment for FY 2003 is $31.6 billion and for the transit program, $7.2 billion, which means a drop in funding for the highway program from 2003 to 2004 while the funding for the federal transit program would remain the same from 2003 to 2004. 
• To generate the additional $700 million/year in Highway Trust Fund

(HTF) revenues, the proposal would transfer 2.5 cents/gallon of the gasohol fuels tax from the federal General Fund to the HTF, and generate $1 billion/year by tapping into HTF’s unspent balance to finance a new “Infrastructure Performance and Maintenance Program”

Watch for updates of these bills in future issues of Pipeline or on the What’s New section of NASBP’s Web site.

SIO Announces New Products

The Surety Information Office (SIO) has revised the classic NASBP and SAA publication, “Your First Bond.” Retitled, “How to Obtain Surety Bonds,” this sleek, four-color brochure explains the basics of contract surety bonds, details the prequalification process, and lists qualities of a professional surety bond producer. This free publication is the perfect tool for contractors pursuing their first bond. Order free copies online at http://www.sio.org/fstore.html.

SIO’s newest PowerPoint presentation, “Reducing Subcontractor Financial Risk,” communicates the benefits of establishing a subcontractor bonding policy. The 30-minute presentation (complete with speakers notes) coversbonding basics; how bonding subs benefits the prime contractor; subcontractor failure; and claims handling. To order free copies of this presentation on CD or color overheads contact SIO at sio@sio.org. The presentation may also be viewed online at www.sio.org/new.html

“Subcontractor Bonding: Everything You Should Know About This Time-Honored Risk-Management Strategy” just appeared in the April 2003 issue of CONSTRUCTOR, published by Associated General Contractors of America (AGC). The entire April issue of CONSTRUCTOR is available on the AGC Web site at http://www.agc.org/NewsBulletins/constructor_default.asp. To obtain complimentary copies of this article, contact SIO at sio@sio.org.

SIO is supported by the National Association of Surety Bond Producers (NASBP) and The Surety Association of America (SAA). For more information visit www.sio.org, e-mail sio@sio.org, or call (202) 686-7463.

T-List Changes

The Finance and Management Services Branch, U.S. Dept of the Treasury, has announced the following changes in its list of approved surety companies:

 Certifications/Additions to List

• Star Insurance Company certified
• U.S. Specialty Insurance Company certified
• The American Road Insurance Company certified
• Navigators Insurance Company certified
• First Sealord Surety, Inc. added (effective 4/25/2003)

Deletions

• Gerling Global Reinsurance Corporation of America deleted (effective 3/13/03
• Markel Insurance Company deleted (effective 3/13/03)
• The Mountbatten Surety Company, Inc. deleted (effective 4/25/03)

The entire list may be viewed at http://fms.treas.gov/c570/c570.html.

Warning About Possible Fraud 

Message Sent To Federal COs From the Finance and Management Services Branch, U.S. Department of the Treasury

This office has been informed that an insurance agent licensed in Florida is illegally selling or attempting to sell surety bonds and other lines of insurance to contractors for Federal government contracts.  He is using a surety company name very similar to a Treasury-approved surety company, but changing the spelling of it slightly, i.e., Americian vs. American.  Federal bond-approving officers are advised to verify the authenticity of any bond written by Americian Contractors Indemnity Company or by American Contractors Indemnity Company by contacting Frank M. Lanak, Director of Claims, at 310-649-0990.  Additionally, it has been reported that the agent has written bonds in the name of Indemnity Insurance Company of North America also on Federal contracts.  This company is not currently a Treasury- approved surety company.

Pipeline is produced monthly by the National Association of Surety Bond Producers, 1828 L Street, NW, Suite 720, Washington, DC 20015-2014, 202/686-3700, Fax: 202/686-3656, www.nasbp.org, Internet e-mail address: info@nasbp.org 

June 2003

 

OFPP Administrator Considers Associations’ Request to Open FAR on POA Criteria
On June 3, 2003, representatives from the American Insurance Association (AIA), the Associated General Contractors of America (AGC), the National Association of Surety Bond Producers (NASBP), and The Surety Association of America (SAA) met with Angela B. Styles, Administrator for Federal Procurement Policy, Office of Management and Budget (OMB). The purpose of the meeting was to discuss the recent issue of the required condition of powers of attorney (POA) on bid, performance, and payment bonds for federal public works projects, and the proposal of the surety and construction industry that the Federal Acquisition Regulations (FAR) be amended to specify certain criteria for powers of attorney, which presently are omitted from these regulations.

Attending from AGC were Jeff Shoaf, Mark McCallum, and Marco Giamberardino, three representatives from AIA; Richard Foss from NASBP, and Edward Gallagher and Seth Mones from SAA.   Also in attendance were Styles’ staff from the Office of Federal Procurement Policy (OFPP), Dana Vader and Dan Burton.

The meeting was friendly and successful. In principle, Styles agreed to amend the FAR to clarify the confusion in the current marketplace caused by the decision of the General Accounting Office in the matter of All Seasons Construction in December 2002, and the ruling in a subsequent case, All Seasons Construction, Inc. vs. The United States, announced by the U.S. Court of Federal Claims on January 23, 2003.

Styles is concerned, however, that the federal government doesn’t go beyond the current law on powers pf attorney in general.  She asked the surety industry to provide information and case law spelling out the power of attorney requirements in situations other than surety bonds.  On behalf of the participating associations, Edward G. Gallagher, SAA’s General Counsel, wrote to Styles on June 13, 2003, and described the power of attorney requirements of state governments and non-procuring federal agencies, as well as those specified in the Uniform Statutory Power of Attorney Act.  He also enclosed various examples from case law.

Gallagher wrote:

…A FAR provision allowing a photocopy or telecopy of a power of attorney to serve as evidence of the attorney-in-fact’s authority to bind the surety company will avoid the significant costs the current situation imposes on sureties and will protect the government from the loss of rejected low bids because of technical defects in powers accompanying what are admittedly valid bid bonds….

 

Styles has yet to respond to the letter.

NASBP Goes to Its ‘Roots
Meanwhile, some of NASBP’s Government Affairs Representatives have been contacting certain Members of Congress to enlist their help and support in urging OFPP to take action on this issue. NASBP wants to recognize and thank Doug Ferris (The Bottrell Agency), Dennis Flatness (Welsch, Flatness and Lutz), Ken Coate (Inland Surety Bonds and Insurance Services), Ernie Susanin (Arthur J. Gallagher & Co. of Connecticut), Jack Sutton (Bratrud Middleton Agency), Bill Davis (May-Davis, Inc.), and Rich Pratt (Nowack and Dean/InterWest Insurance), for continuing to work with their Representatives and Senators on behalf of the industry.

President’s Message
Thanks to all who read my article (speech) last month.  The comments I received were both encouraging and challenging, making this month’s article much more difficult to pen.

Continuing the theme from last month, one might ask, “Where do we start on our quest of returning our industry to preeminence?  I say we do it through Outreach, Education, and Professionalism.”  In my mind, these topics are so interwoven for our industry, that to start one is to start them all.

We’ve all heard a lot of talk about “getting back to basics.”  While this certainly seems to be the trend in underwriting, I sometimes wonder if we’ve let this industry’s real basics get away from us.

While looking at the Legislative Report in last month’s Pipeline, I was struck by the many pieces of legislation in various states that proposed increasing the threshold for requiring surety bonds on public projects.

A professor of contract surety history, I’m not; however, these increases in bond requirement thresholds on public projects are contrary to some of the basic principles of surety.

Prequalification, granted, is a service we have been accused of neglecting during the soft market.  Yet our industry is paying for that sin, not the taxpayers.  Contracting and procurement officers at every level of government are taxpayers just like you, me, and our contractor customers.  The basic tenet of not allowing one taxpayer to decide which taxpayer is permitted at the public trough is as valid today as yesterday.

“We the people . . .” are words that define so much that is great about our country– words that have helped shape a body of law and frame the outline of the protection we provide.  We are the government, and you can’t lien yourself.  Our contract surety products have provided the necessary protection that has helped build public projects for many decades.

The current trend of examining, adjusting, and raising these thresholds is arguable.  One could claim that this practice only affects smaller projects.  Current risk management philosophy might assert that annually adjusted floors make sound financial sense.

Raising thresholds is bad business as this practice lays bare more and more of our hard earned tax dollars.  Further, this practice is bad public policy.  In these difficult economic times and declining tax revenues, who wants to tell a subcontractor or supplier that they are out of luck getting paid because the job “wasn’t required” to be bonded?  Does anyone want to watch their kids miss the start of school because the “little” $50,000 renovation contractor defaulted, the project’s not finished, and the school district is out of funds to complete it–all because the job “didn’t have” to be bonded?

Okay, I know I’m rambling, but stick with me.  Through professional education and outreach efforts, we can get back to our basics of prequalification and protection.  This is the true value we add!  This is the story we need to tell!

Start with a local trade association meeting.  Volunteer to be a speaker.  Tell the surety story.  Reach out to our constituents, educate them about our product, and demonstrate the professional role and value surety has played in prequalification and protection.  Let’s tell that story!

Finally, on another note, did you see SAA’s 2002 results?  While a direct loss ratio of 69.9% is not what we would have hoped for, it’s still an improvement from 2001.  But look at the dollars . . . 2 ½ BILLION in direct losses incurred!  Sureties don’t pay claims? Somebody’s lyin’!

Matthew K. “Matt” Cashion, Jr. is Secretary/Treasurer of The Cashion Company, Inc. in Little Rock, AR.  He can be reached at Mattc@cashionco.com.

Professional Development and Education Events
New & Improved Level III Surety School To Take Place in Nov.
Register now for the curriculum-enhanced William J. Angell Surety School Level III that will take place in Houston, TX, on November 13-15, 2003.  This advanced level professional development education program is designed for Level II graduates or those with a minimum of 5-10 years of industry-related work.

Time Is Running Out To Register For Level I Surety School!
Space is limited in the William J. Angell Level I Surety School, which will take place  at The Fairmont Hotel in Dallas, TX on August 6-9, 2003.   This is the only Level I session to be offered until February 2004.   Register while there is still space available at the hotel and for the class.

Don’t Miss Regions 8, 9, 10, 11 Annual Meeting At The Grand Floridian Resort & Spa
Fantastic business and social programs are planned for the Regions 8, 9, 10, 11 Annual Meeting attendees in Orlando, FL,  on July 24-26, 2003, at The Grand Floridian Resort & Spa.  This first-class Disney hotel and the surrounding area offer exciting activities for all ages!  Check out the meeting brochure for details.

 

North Carolina Enacts Anti-Directed Surety Bill
NC Becomes 37^th State With Statutory Prohibition
On June 19^th, Governor Mike Easley signed HB 276 into law, making North Carolina the 37^th state to statutorily prohibit directed suretyship.  The enactment of this new law, which goes into effect on October 1, 2003, is the successful conclusion of a campaign started by NC surety professionals last year.

Under the leadership of Jeff Gaines (Travelers), the 2002 president of the Carolinas Surety Association (CSA), CSA obtained the services of Henry Jones of Jordan Price Wall Gray Jones and Carlton, a law and lobbying firm in Raleigh.  Jones researched the viability of proposed legislation that would be accepted by both the Legislature and the Governor.  Included in his research were discussions with various stakeholders to determine their support of or opposition to such legislation.

Larry Mastalski (Chubb) took over as CSA’s 2003 president, and the Association decided to pursue legislation. SB 767 was introduced on April 3 as a stand-alone bill.  When the bill failed to proceed through the Legislature, it was appended to another measure, HB 276 and sailed through the legislative process.

Congratulations to the CSA for a job well done!

 

Also In This Issue

Contractors Plus: The Professional Liability Solution For Design-Build Contractors
Situation (For confidentiality reasons, the actual names of the school district, contractor, and architect have been omitted).
The ABC School District retained contractor X under a design-build agreement to design and construct a new middle school for the district.  Contractor X, who had no in-house design capability, contracted with architect Y to complete all the necessary design work.  Contractor X required architect Y to have a $2 million Professional Liability Policy in effect with a copy of the policy available.

During the construction of the east wing of the school, the contractor discovered that the architectural design was significantly flawed.  Construction came to an abrupt halt.  The corrective design resulted in a 2 1/2-month construction delay that forced the school district to double-up classes, increase busing within the district, and retain portable classrooms for a 6-month span.

The school district filed suit totaling $1.8 million against the design-build contractor for not completing the project on time and for the additional costs associated with the delay.  The contractor, in turn, filed suit against the architect for the design errors that were the proximate cause of the delay damages.  The architect informed the contractor that two (2) prior claims against the architect in the policy year had reduced the available coverage to $500,000.  The contractor’s CGL carrier refused to provide coverage for the contractor, stating the damages were the result of professional services and were, therefore, excluded from coverage.

Result                                                                                                                                             Fortunately, the contractor had a Contractors Plus policy.  The policy covered the contractor for the contingent exposure of retaining a design professional who negligently designed the project.  Because the Contractors Plus policy is primary, the full policy limit is available to cover the district’s claim.

Contractors Plus offers a simple solution to help producers avoid the risk of an E&O problem and provides the right coverage for the increase in exposure that design-build contractors face on a daily basis.

As a member of NASBP, you have access to the Contractors Plus Program. Please pass this information along to your agency’s marketing department, construction division, or general property & casualty division.

For questions and to learn more about the Contractors Plus Program contact Mark Booth at 1-888-897-8924 or visit the NASBP website at www.naspb.org.

 

From NASBPs General Counsel:  Sometimes Asking For And Receiving An Answer Is Not Enough
Sometimes Asking For And Receiving An Answer Is Not Enough
Bidding on federal contracts is a challenging and technically difficult process.  There are hard and fast rules concerning the time frame in which a bid may be submitted.  One minute late, and you’re out of luck.

The bid has to be complete and cannot include any qualifications.  Unless the bidder meets the government’s requests in its bid without exception, the bidder will be disqualified.  The bidder cannot submit photocopied supporting documents such as bonds and powers of attorney without risking the rejection of its proposal.

With so many pitfalls, it’s hard to believe that the government could find another to add.  But it did.  In a recent decision, Matter of Groh, Comp. Gen. B-291,980, the Comptroller General was faced with the protest of a contractor, Groh, whose bid had been rejected because the bid was submitted late by fax.  Groh disputed the contracting officer’s determination that the bid was late and offered evidence attempting to prove that its faxed bid arrived before the deadline.

The Comptroller General found that there was not sufficient evidence submitted by Groh to prove that its faxed bid arrived on time.  The interesting part of the case, however, is that the Comptroller General went on to hold that Groh’s bid would have been disqualified even if it had arrived on time because it was submitted by fax.

The Comptroller General’s opinion states that there was some ambiguity in the project bid documents.  This ambiguity prompted Groh to ask the government whether faxed bids would be accepted or not.  The government responded to Groh’s question with an E-mail informing Groh that a faxed bid would be accepted.  The E-mail was not sent to the other bidders.

The Comptroller General found that the government violated its obligation to provide information about the bidding process to all potential bidders when it provided Groh the information that faxed bids were acceptable.  As a result, the government unfairly provided Groh with an advantage over the other bidders.  Specifically, the Comptroller General concluded that Groh’s knowledge that a fax submission would be accepted gave Groh more time to prepare its proposal than the other bidders.  In the Comptroller General’s opinion, this resulted in an “unfair competitive advantage.”

The lesson is a painful one for the contractor in this case.  Groh noted an ambiguity in the Government’s Request for Proposals and asked the government to clarify that ambiguity.  Although the government answered Groh’s question, Groh later found out that he/she had no right to rely on the government’s answer because the information was not provided to all potential offerors.

For contractors involved in public works construction, the practical way to avoid the problem encountered by Groh is to avoid privately asking for any information from a public owner.  Questions about the bid process, ambiguities in plans or  specifications, or any other concerns about a Request for Proposal should be addressed in a formal request to the government in whatever manner is expressly permitted by the bid documents.  The goal of any request should be the issuance of an addendum to the bid documents that is available to all bidders.  While it is easy for contractors to seek short cut answers to questions about bid documents, the Groh decision illustrates the heavy penalty a contractor could pay for that decision.

NASBP’s General Counsel is Susan McGreevy of Husch & Eppenberger LC, Kansas City, MO.

 

T-List Changes
The Finance and Management Services Branch, U.S. Department of the Treasury, has announced the following changes in its Listing of Approved Surety Companies:

 

 Certifications/Additions to List

Arch Reinsurance Company

Lexington Insurance Company

 

Deletions

American Manufacturers Mutual Insurance Company

American Motorists Insurance Company

Lumbermens Mutual Casualty Company

Generali, U.S. Branch

Capital City Insurance Company, Inc.

 

Changes

Underwriters Indemnity Company changed its name to Lexon Insurance Company

The entire list may be viewed at http://fms.treas.gov/c570/c570.html.

 

Snippets From the States, Part II: 2003 Construction and  Surety-Related State Legislation
Thirteen states are still in regular session with New Hampshire, Rhode Island, and Oregon expected to adjourn over the next month.  Last month’s Pipeline provided a brief overview of some of the legislation NASBP has been tracking this year. This report describes additional legislation and provides updates to some of the bills reported last month (* refers to updates).

Handling Surety Claims
A bill in LA (HB 941), calling for prescribed procedures in the handling of surety claims, was amended to require the surety to respond within 30 days after the DOT notified the surety of a default.  The bill as introduced called for 15 days.  Status:  Passed Legislature; Awaits Governor’s Signature*  

Another LA bill (HB 1755) provides that when a surety has been called to complete a public building or construction contract, the surety has the right to select the contractor.  If a surety is terminated, the contractor can continue work unless he is disqualified and a contractor wrongfully terminated is entitled to treble damages.  Status:  In House Committee

Electronic Reverse Auction Bidding (ERAB)
The MN appropriations bill (HB 627) that was amended to include a provision permitting ERAB in the span bidding of construction services died before adjournment. In a special session HB 1a and SB 1a passed the legislature, but removed construction services from the ERAB process.
Status:  Signed by Governor 5/28/03*

Annual Increase of Bond Thresholds
A CA bill (AB 229) would require the Superintendent of Public Instruction to raise the threshold from $15,000 to $50,000 and thereafter on an annual basis beginning 1/1/04.  Status:  In Assembly Committee*

NY bills (HB 9099 & SB 3363) increase the base amount for contracts requiring performance and payment bonds to an aggregate amount of $100,000.  They were recently amended to remove a provision requiring the Comptroller to adjust this amount annually by adding to the previous one-year aggregate amount an amount equal to the aggregate amount multiplied by such year’s consumer price index.  Status:  In House & Senate Committees; Amended in Senate to match House bill 6/12/03*

Retainage
A NC bill (HB 1146) authorizes the Secretary of the Department of Administration to study retainage on public construction projects, then adopt rules on retainage for state agencies and the UNC and community college systems and guidelines for local government units engaged in public construction.  Status:  Passed House; In Senate Committee*

A bill in PA (HB 1254) reduces retainage from 10% to 6% of the amount due the contractor until 50% of the contract is completed and reduces sum withheld by the government agency after the contract is 50% completed from 5% to 3% of the value of completed work based on monthly progress payment requests.  Status:  In House Committee

Warranty Bonds
A CA bill (AB 1745) would give the CA Department of Transportation the option of requiring contractors to submit a separate warranty bond upon project completion, or, with the contractor’s consent, retain the performance and payment bonds until the end of the warranty period.  The performance bond must be released if the contractor submits a warranty bond.  Status:  Passed Assembly; In Senate Committee

Procurement Process
A NJ bill (SB 2393) allows counties, municipalities, or any non-State board, commission, committee, authority or agency to award contracts to one of three lowest bidders, instead of automatically to the lowest bidder.  Status:  In Senate Committee

NY bills (AB 8878 & SB 5162) authorize the NY State Thruway Authority to proceed immediately to award contracts for emergency work in accordance to written procedures approved by the Authority Board.  The written procedures do not need to comply with the normal process for awarding public works contracts however the bill specifies that performance and payment bonds are still required.  Status:  In House and Senate Committees

Small, Minority Contractors
Legislation in NJ (SB 826) would create new reporting requirements for sureties regarding the provision and denial of bonds to minority contractors.  Status:  In Senate Committee

A NY bill (AB 9057) obligates the state to let state contracts for construction projects and the procurement of services to small businesses owned by women minorities.  Requires NY agencies and departments to provide a report to the governor and legislature detailing their efforts to address women and minority contractors.  Status:  Passed Legislature; Awaits Governor’s Signature

Owner Control Insurance Programs (OCIPs)
TX legislation (SB 1952) was an omnibus government reorganization bill that went through many transformations.  At one time, it even included a provision mandating OCIPs on all state construction projects.  The concept was to save the state money, but the proposal proved to be unworkable and was removed from the bill.  Status:  Died in Conference Committee

This is not a comprehensive list of all the important construction- and surety-related bills considered by state legislatures.  Look for more state snippets in subsequent issues of Pipeline or access updates on current legislative activity by visiting the “Member and Affiliates Only” section of the NASBP Web site at http://www.nasbp.org/membersonly_files/memlogin.cfm.  Login and click on “Government Relations” and then on “Bill Tracking 2003.”  When asked for your User ID and Password, simply enter the same information used to access the “Member and Affiliates Only” section.  Instructions on how to use the service are provided on the Web page.

 

States Find Ways to Deal With ’03 and ’04 Budget Shortfalls
According to the National Conference of State Legislatures, states have closed or are closing about approximately $80 billion in budget shortfalls for the current fiscal year, which ends June 30 in most states, and another $75 billion in shortfalls for FY 2004.  Balanced budget requirements mean that states are forced to cut programs and find ways to increase revenue to close budget gaps.  The Federal government is providing some relief by distributing $10 billion in temporary fiscal relief payments to states under the Jobs and Growth Tax Relief Reconciliation Act recently signed by President Bush.

States have been cutting spending across the board and increasing revenue with either higher fees or tax increases.  For example, the Florida FY 2004 budget that takes effect on July 1 offers no new taxes, but it increases tuition, fines, and fees and also borrows $1.3 billion from the state’s “rainy day” trust fund.  Raiding the state trust fund could lead to even more difficulty when it comes time to balance next year’s budget.

According to the American Council of Engineering Companies, Connecticut and Maryland have reallocated funds out of their transportation budgets into the general fund, and the state legislature in Wisconsin is considering similar action. Members in several states report that the letting of public projects has been delayed or postponed.

Idaho has already approved a 1-cent increase in the state sales tax, and Ohio is expected to follow suit when Governor Taft signs the budget bill recently passed by the legislature.  The July 1 deadline for FY 2004 budgets has also lead to showdowns between governors and legislators.  In New Hampshire, Governor Benson is threatening to veto the budget bill passed by the legislature and shut down the state government.  Even with July 1 approaching, partisan politics in New Jersey continue to stall the budget, which relies heavily on increased taxes on nursing homes, telephone bills, home sales, utilities, and Atlantic City casinos.

In a stunning move, the Texas state comptroller refused to certify the budget passed by the legislature because she said it does not balance.  Instead of the budget returning to the House to be amended during a special session originally intended for redistricting, Governor Perry compromised with the state comptroller and vetoed $81.1 million in higher education funding.

Many other states are taking similar actions to finalize their FY 2004 budgets.  Until economic recovery translates into increased revenue, almost all the states will continue to face budget shortfalls.  Tax and fee increases will proceed, while states look to cut spending on health care, education, public safety, and even construction projects.

 

Budget Woes Motivate Massachusetts to Try Reforming Procurement Policies
For several years much has been said about the need to reform Massachusetts’ procurement policies.  During this legislative session, however, the state’s budget woes have been the motivation for reform efforts.  NASBP member Jack Curtin, of Curtin International Insurance and Bonding Agency, Inc., is actively coordinating with the AGC of Massachusetts and the Massachusetts Construction Industry Council to ensure the surety industry takes an active role in the debate.

Governor Romney has already recommended that local projects under $100,000 and towns with fewer than 5,000 residents be exempted from the requirement that workers be paid the prevailing wage.  Lawmakers already are considering, as part of an appropriations bill, a proposal (HB 4003) to raise the threshold for performance and payment bonds to $100,000.

The cities and towns have persuaded the governor that the filed sub bid system creates inefficiencies, adds costs, and creates confusion.  Under the current system, as many as 17 sub trades are bid a week before the general bids.  The GC must then choose the subs he will carry in his bid, he may not substitute any subs or change and negotiate the sub’s price.  GC’s usually carry the lowest bidder in each trade, since the awarding authority may force him to do so after the bid.

The main problems with the current system are that the architect must do a separate scope of each of the sub trades and the GC is denied the ability to choose his own team for the job.  The relationship the system creates has been described as a forced marriage that can create discord and performance problems.  Additionally, awarding boards are comprised of local volunteers who often have little knowledge of the construction process.  The current system does prohibit bid shopping, provides subs with a statutory form of contract, and allows subs to file for payments direct from the awarding authority.

Curtin reports that with the emphasis on filed sub repeal (HB 2882), it appears unlikely the focus will shift to any meaningful reform of the construction procurement process.  AGC has decided to pursue CM at risk and design-build as viable options for public agencies and authorities in their procurement of construction services.  Currently, the MA Inspector General has submitted a bill (HB 2881) that would allow the use of design-build on horizontal construction projects, but the bill lacks specific procedures and scoring standards.

Below are some of the other important bills currently under consideration in Massachusetts:

HB  1590 – Same provisions as listed below for S 1628 and H 2698, but also requires that all filed sub contractors on vertical construction projects be required to provide bonds  (current law calls for GC to designate which subs will be bonded).  Status:  Heard in Joint Committee; Eligible for Executive Session

HB 1941 – Extends the time allowed an awarding authority to make final payment to contractors from 15 days to 30 days.  Status:  Heard in Joint Committee; Eligible for Executive Session

HB 2880 – Allows awarding authority to award a job to any of the three low bidders.  Status:  Heard in Joint Committee; Eligible for Executive Session

SB 1627 – Allows for interest to be paid on retainage.  Status:  Heard in Joint Committee; Eligible for Executive Session

SB 1628 & HB 2698 – Requires 100% performance and payment bonds on all construction projects and requires surety be T listed.  Status:  Heard in Joint Committee; Eligible for Executive Session

 

Alleged Surety Fraud in Washington State
According to an article posted on the Web site of the Bremerton (WA) Sun Newspaper, www.thesunlink.com, on May 23, 2002, the second phase of a project to remodel an elementary school in North Kitsap, WA, is being delayed a year because the contractor, Granquist Construction Co. of Port Orchard, WA, allegedly provided bonds that the surety company never authorized.  The remodeling project was to have started six days after the close of school for summer vacation.  The board of the North Kitsap School District voted to terminate its contract with Granquist because the construction company did not reply to the district’s request to furnish proof that it had legally obtained performance bonds.

Hired by the school district in March 2002, Granquist completed the first phase of the job—approximately 2/3 of a $2.7 million project–and was ready to finish the final $997,000 of the project.  At the time it was hired, Granquist produced bonds supposedly authorized by the Seattle office of the Contractors Bonding and Insurance Company (CBIC).

North Kitsap officials became aware of a potential problem when irregularities were found in the bonds provided by Granquist for projects in Bremerton and Renton, WA.  CBIC told the cities’ officials that it had never issued the bonds, and that the signature on the bonds was that of a former employee who had not been with the company since 1996. The Sun quoted the owners as concluding that “the signature was a forgery and the bonds were fake.”

North Kitsap’s school will wait until next summer for the remodeling to take place.  District officials felt it was too late to go forward with the project this year because it had to hire a new contractor.  They were concerned that the job couldn’t be completed before the new school year began and could inconvenience students.  School officials have yet to announce whether they will pursue legal action against Granquist.

The Renton project is back on track after construction was halted 1/3 of the way into the project when they discovered the bond irregularities. The city hired a new contractor to finish the work and referred the case to local police for investigation.

The Bremerton project was almost complete when officials discovered the bond irregularities.  They did not stop the project but required Granquist to co-sign checks with the city to ensure that the project’s 51 subcontractors will be paid.

 

Briefly Noted
CELEBRATION
Koula Korson, NASBP’s Director of Operations and Finance, celebrates 25 years of employment with the Association on July 1.  Although Koula has filled various positions at NASBP, her primary contributions have been in the finance and membership arenas. She has served with three executive vice presidents and 25   presidents.  Please join us in recognizing Koula’s 25 years of dedicated, loyal, and steadfast employment.

PASSING
With sadness we report the death of Lou Feibel of St. Paul, who passed away suddenly of an apparent heart attack at his home on June 22.  Lou was a surety account executive in St. Paul’s Orange, CA branch office.  In addition to his underwriting responsibilities, he was playing a key role in the transition of business from Orange to Phoenix and was planning to relocate to Phoenix later this summer.  Lou’s surety career began in 1963 as an underwriter with the Fireman’s Fund.  After working many years on the company side, he worked briefly as a bond producer, returning to the Fireman’s Fund in 1989.  Condolences many be sent to Mrs. Janiece Feibel; 156 S. Woodlawn Drive; Orange, CA  92869.

Katie Bradbury, wife of David Bradbury of NASBP member agency, Murray Insurance Associates, Inc., died suddenly on May 14^th.  In addition to Dave, she is survived by a 17-year old daughter, Jenny.  Messages of condolences should be sent to the family at: Murray Insurance Associates, Inc.; 39 North Duke Street; Lancaster, PA  17602.

POSITIONS
XL Surety is currently seeking a Surety Underwriter for is regional office in Norwood, MA.    Responsibilities: Underwriting, marketing, and servicing contract and commercial business in accordance with established underwriting guidelines.  Requirements: Three or more years surety underwriting experience; strong organizational, analytical & communication skills; and the ability to make sound underwriting decisions.  For immediate consideration please send resume w/salary requirements to XL Surety, 100 River Ridge Drive, Suite 200, Norwood MA  02062 or fax to (781) 769 – 5252.                                                                                                                                   Selective Insurance has an opening for a Bond Underwriter in its Mid-America Bond Department located in Columbus Ohio.  Responsibilities: To evaluate contract bond accounts submitted by producers, to market contract bond products to producers, and to service/underwrite existing contract bond accounts. This is a diverse and challenging bond underwriting position involving the development and use of skills necessary to underwrite contract surety bond accounts, as well as commercial surety and fidelity products, and involves reviewing financial statements and financial analysis of contractors and other business entities through by using spreadsheet-based computer applications.  Requirements:  Bachelors Degree in Accounting, Finance, or Economics, or CPCU, AFSB, AAIF, or other designations; minimum of 5 years bond underwriting experience; excellent marketing and customer relation’s skills; exceptional time management skills; excellent analytical, oral, and written communication skills; experience with Microsoft Office Suites and based PC applications experience working in a construction environment, accounting, auditing, or banking field.  Interested parties should contact: Tom Magistro at thomas.magistro@selective.com; Selective Insurance; 40 Wantage Ave; Branchville 07890. While all responses are appreciated, only those candidates who best meet the desired qualifications will be contacted to further discuss this opportunity.

PRODUCER NEWS
PCL Contracting Bonding Agency recently announced the addition of Steven W. Lewis to its producer team.  Lewis began his surety career in Arizona in 1989 and has worked in the Dallas-Fort Worth area for 10 years as a contract bond underwriter for both regional and national surety companies.

 

SIO Update
Awards for Excellence & Tiger Trust
Discover which groups and individual surety professionals captured SIO’s top honors with the 2002 Excellence in Surety Bond Promotion and Tiger Trust awards at http://www.sio.org/new/awardwinners.html.

2003 ENR Surety Supplement
The 2003 Engineering News Record (ENR) Surety Supplement, Surety Bonds 2003: The Power to Protect, The History to Prove It, takes an in-depth look at the surety marketplace and offers insight into what’s to come. Surety executives offer unique insights and discuss issues and trends.

The supplement is perfect for explaining today’s surety market to owners, lenders, contractors, and design professionals. Order free copies by calling 202/686-7463, on the Web at http://www.sio.org/fstore.html or view the online version at http://enr.construction.com/resources/special/archives/surety_2003.asp.

Stylish Designs – Timeless Content
SIO has revised and rejuvenated two classic brochures, “The Importance of Surety Bonds,” and “SBA’s Surety Bond Guarantee Program.”

“The Importance of Surety Bonds in Construction” provides a historical overview of surety bonds, addresses the risks involved in construction, and summarizes the benefits of bonds.
The “SBA’s Surety Bond Guarantee Program” brochure summarizes the U.S. Small Business Administration’s program, which helps small and emerging contactors obtain bonds.

This updated publication examines: program eligibility; prior Approval Program; Preferred Surety Bonds Program; and application forms and documents.

Order free copies of these brochures by visiting http://www.sio.org/fstore.html, calling 202/686-7463, or sending an e-mail to sio@sio.org.

SIO is supported by the National Association of Surety Bond Producers (NASBP) and The Surety Association of America (SAA). For more information visit www.sio.org, e-mail sio@sio.org, or call (202) 686-7463.

 

International Surety/Insurance Association (ICISA) Submits Annual Meeting Report
On June 13, the International Credit Insurance and Surety Association (ICISA) released the following news report.

Credit And Surety Insurers Return To Profit

“Leading credit insurance and surety insurers and their reinsurers met in Switzerland from 11 to 13 June 2003 under the banner of the International Credit Insurance & Surety Association (ICISA) where they discussed the main issues that affect this industry following the economic developments over the past 12 months. The meeting took place while the sector experiences heightened awareness of credit and credit risk.

Members of ICISA reviewed the various challenges the sector faces. These include the effects of the Basle II Accord on this sector of the insurance industry. Changing capital allocation requirements are reasons to review risk portfolios.

ICISA also invited rating agencies, research- and management experts to join the discussions. Representatives from the Berne Union, the International Factors Group, the International Surety Association, the Pan-American Surety Association and the Surety Association of America took part as well.

ICISA reported its success in having the industry’s wishes incorporated into the proposed new International Accounting Standards (IASB).

ICISA members showed increased premium growth and a return to profit, after several loss-making years for most of the players. This is a result of stricter underwriting as well as improved trading conditions in many countries. A sluggish economic recovery for the USA this year also contributed. Economic growth in Europe is not expected before 2004.  Claims ratios have improved as well, indicating a lower level of bankruptcies in most countries.

This, the 61^st general meeting of the association, was hosted by Converium, Swiss Re and Winterthur.

About ICISA
Credit insurers and surety underwriters have been working together for 75 years under the banner of the International Credit Insurance & Surety Association (ICISA).

Credit insurance covers the manufacturing, trading and service industry against the risk of loss due to non-payment by their customers.  For more information visit www.getpaid4trade.com.

A surety bond or guarantee is normally required under the terms of a construction or engineering contract, to secure the obligations of the principal debtor. It provides security against the failure of a contractor to complete a contract in accordance with its terms.

ICISA was established in Paris in 1928. Since then it has grown to 67 member companies insuring risks in practically every country in the world. Members include the three largest credit insurance groups (Coface, Euler & Hermes, Gerling NCM) as well as the three leading reinsurance companies (Hannover Re, Munich Re, Swiss Re). Surety members include Seoul Guarantee of Korea as well as CNA of the USA. Several members provide both credit insurance and surety products, for example Chubb of the USA, QBE of Australia and Tokio Marine of Japan.

The executive of ICISA is formed by a management committee, which is headed by the President Frank Robertson (Vice President – Chubb Group), and the Vice President François David (Chairman and Chief Executive – Groupe Coface).

For more information visit www.icisa.org, e-mail secretariat@icisa.org, or contact

Robert Nijhout, ICISA’s Executive Director, at 1-2 Castle Lane, London, SW1E 6DR United Kingdom, by telephone at +44 (0)20 7233 8880, or by FAX at +44 (0)20 7233 8544.

 

Pipeline is produced monthly by the National Association of Surety Bond Producers, 1828 L Street, NW, Suite 720, Washington, DC 20015-2014, 202/686-3700, Fax: 202/686-3656, www.nasbp.org, Internet e-mail address: info@nasbp.org 

Disclaimer:  This information is provided for educational and informational purposes only and is not intended to serve as legal advice.  Readers are cautioned to consult their legal counsel on any specific matters.

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