June 2008
|
||
 A Call to Mentor Those We Interact with Daily |
||
|
I begin my term as President of the National Association of Surety Bond Producers with no small amount of angst and trepidation. I consider it an honor and privilege to represent this organization for the coming year; already, it has been a humbling experience.My theme for the coming year is to have a “Celebration of Surety.” This time-honored and widely-used product of ours has served society well for the past 100-plus years. Let’s be proud of our past accomplishments, take stock of today’s challenges facing the surety product, and continue in this millennium with the standard of excellence with which end users have come to expect from us.
One of the challenges before us is training and developing those new to the surety industry. We have a unique closeness in this industry to all with whom we interact daily. This provides us many opportunities to foster, mentor, and pass on the secrets of our own success and that of our industry to others. Back in the day (a phrase our teenage children frequently use), our industry practiced a form of training and development that has been lost over the years, or at the very least, become scarce. I’m referring to the concept of mentoring. The term as defined in an online dictionary is as follows: As a young “rookie” in the surety business, I was lucky to have a number of mentors who took an early interest in my career. I received the normal teaching and training, as needed, but the mentoring I received from interested professionals took my education to a much higher level. Their guidance and advice helped immerse me into a culture of unwavering ethical business behavior. My mentors imparted knowledge of how to be successful beyond book smarts and how to develop the innate sense or feel for the customer/account. The concept of doing right and being noble became second nature, beyond a deliberate thought; it became instinctive. This kind of guidance helps a beginning surety professional understand the ethical commitment of the profession. The more who enter this profession and adopt a standard of ethical behavior, the more professional and successful our industry will become. This concept of mentoring is far from a new one. The trade guilds of the Middle Ages had a structured apprenticeship system where the master artisans passed on their knowledge and ability to the apprentice. Our own associates in the building trades carry on the tradition. The surety industry’s challenge is beyond training and passing on of knowledge. Our additional challenges include teaching those who enter this profession a high-standard of ethics, a commitment to earn the confidence of clients and colleagues, and an appreciation of a culture bound by an esprit de corps. Experienced agents can easily try to take advantage of new, gullible underwriters to obtain what they need for their agencies. I would challenge these parties to renew their commitment to the highest standards of ethical behavior. Everyone will benefit from such a commitment, learning from each other’s example and shaping a tremendous future for our industry. On the opposite side of the coin, seasoned, well-established underwriters could easily dismiss and discourage agents/brokers new to this business. I would encourage that they work together to create a supportive environment to nurture the “young” of our business. When an account doesn’t pass muster, I encourage underwriters to provide a detailed explanation why it was declined. I ask our members and affiliates to assume a mentoring philosophy with those they transact business with on a daily basis. In the end, our industry will include more qualified and prepared people at all levels. This effort will help the industry concern of having enough qualified people. With the continued help and support of the dedicated NASBP members and affiliates and NASBP staff in Washington, I am confident of a successful year. I look forward to working together to face the challenges ahead. I also wish to recognize and to congratulate The Surety and Fidelity Association of America (SFAA) on the celebration of its 100th Anniversary. Best wishes and much continued success. Respectfully, William F. Maroney William F. Maroney is Senior Vice President of City Underwriting Agency, Inc. of Lake Success, New York. He can be reached at bmaroney@cuagency.com. * “mentor.” Merriam-Webster Online Dictionary. 2008. |
||
|
|
||
 |
||
 Court Examines Meaning of “Bondability Letter” |
||
Prudent bond producers and sureties carefully craft letters requested by obligees to demonstrate that a contractor or a specialty contractor has an established surety credit relationship in place. Such letters increasingly are requested in the prequalification procedures of construction owners and general contractors. Letters of “bondability”, sometimes called “sunshine letters” or “good guy letters,” should contain sufficient conditions so that they do not inadvertently create any binding obligations on the part of the surety—i.e., mandate the issuance of the performance and payment bonds by the surety irrespective of the nature of the proffered construction agreement or the financial condition of the contractor. Recently, the language of a “bondability letter” was at issue in a legal case in Texas. The facts of that case, as related in a recent slip opinion, and the court’s analysis are interesting and instructive.A developer formed a limited partnership to construct and operate an apartment complex. The partnership sought to use a mortgage guaranteed under a program of the U.S. Department of Housing and Urban Development (HUD). As a condition of HUD-guaranteed financing, HUD required “an assurance of completion” from the contractor. The partnership directed the construction contractor with whom it was negotiating to obtain and to furnish to the partnership a letter showing that the contractor was “a bondable company.” The contractor turned to its producer, with whom it had a pre-existing business relationship, to generate a letter concerning its surety credit relationship. The letter, dated in August 2000 and signed by the producer as attorney-in-fact for the surety company, stated the following:
After receipt of the letter, the partnership continued to negotiate with the construction contractor, intending to finalize the construction contract and to close on the HUD financing in mid-December. Over the next several months, the contractor’s financial position declined significantly due to problems on other construction projects, prompting its surety company to inform the contractor’s producer in mid-October that the surety company was suspending all bonding support for the contractor “until further notice.” In November, the surety company decided that it no longer would bond the contractor, whereupon the contractor informed the partnership that it was experiencing problems securing performance and payment bonds for the apartment project, but assured the partnership that it could work out this problem. In early December, the contractor further informed the partnership that it would not be able to secure performance and payment bonds before the end of the year. Shortly thereafter, the producer sent a letter to the partnership stating that “an acceptable contract was not received” and “[i]n the absence of a contract and application, [the surety company] did not issue any bond in connection with the reference project.” The partnership had started negotiations with a second contractor for the project and, in February 2001, closed on the HUD financing with the second contractor. The construction contract was in the amount of $18.9 million, a $1.9 million increase over the amount the partnership intended to pay the first contractor. The partnership initiated lawsuits against the surety company, the bond producer, and the first contractor, among others, alleging claims of breach of contract against the surety company and fraud against the surety company, the bond producer, and the first contractor. At trial, the jury awarded the partnership more than $4.7 million dollars in damages against the surety company on the breach of contract claim and the fraud claim. The surety company then brought an appeal, arguing, among other things, that the “bondability” letter did not constitute an enforceable contract. The appellate court first examined the surety company’s contention that the bondability letter was not an enforceable contract, noting that a contract “is legally binding only if its terms are sufficiently definite to enable a court to understand the parties’ obligations.” The appellate court further observed that “[w]hen an agreement leaves material matters open for future adjustment and agreement that never occur, it is not binding upon the parties and merely constitutes an agreement to agree.” The appellate court also concluded that a surety bond contract, including a contract to issue bonds, must comply with the statute of frauds, a statute that is satisfied when a written memorandum exists “which is complete with itself in every material detail and that contains all of the essential elements of the agreement, so that the contract can be ascertained from the writing without resorting to oral testimony.” In ascertaining whether the “bondability” letter contained all the “essential terms” needed to comply with the statute of frauds, the appellate court pointed out that, among other essential terms, the letter failed to include any information regarding the consideration—e.g., the price—that the surety company would receive for issuing the bonds and ruled that the letter was “too indefinite” to form a binding agreement that complies with the statute of frauds. The appellate court next turned to the fraud claims, each of which were based on a separate alleged misrepresentation, and noted that the first was predicated on a claim of fraudulent inducement—i.e., the surety company misrepresented its willingness to issue the bonds—and the second on a claim of common-law fraud—i.e., the surety company misstated in the letter the single and the aggregate surety bonding lines of the construction company. A claim by a party that it was fraudulently induced to enter into a contract cannot stand in the absence of an enforceable contract, reasoned the appellate court. The appellate court then tackled the claim alleging common-law fraud. Noting the surety company’s admission that the “bondability” letter contained a “false statement of fact”—i.e., incorrect bonding line amounts, the appellate court reasoned that the partnership could not have reasonably relied on that statement and, in any event, the partnership’s damages were not caused by the misrepresentation regarding the amount of the contractor’s bonding line. In making its determination, the appellate court pointed out that the “bondability” letter did not contain a representation that the bonding line would continue indefinitely, or even past the date of the letter. Without such a representation, the partnership could not have justifiably relied on the letter as a firm commitment by the surety company to issue bonds in the future, reasoned the appellate court. Moreover, opined the court, the misrepresentation in the letter was not the cause-in-fact of any partnership damages; rather, any damages suffered by the partnership would have resulted from the fact that the contractor’s financial condition had deteriorated, rendering the contractor incapable of obtaining bonding, not from a misstatement of the contractor’s existing bonding line. For these reasons, the appellate court reversed the trial court’s decision. |
||
|
These materials are provided to NASBP members and affiliates 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. |
||
|
|
||
| ConsensusDOCS™ BIM Addendum Document Published |
||
 On June 30th, the ConsensusDOCS™ coalition, an initiative of 21 leading construction and surety organizations, published a new, first-of-its-kind document that addresses use of Building Information Modeling (BIM) by project parties. The document, titled ConsensusDOCS™ Document 301, Building Information Modeling Addendum, was approved by member organizations of the ConsensusDOCS™ coalition of which NASBP is a member. Click here for the ConsensusDOCS™ press release.NASBP, which approved the document at its Annual Meeting held this spring, believes the new document will be of tremendous help to the industry as it begins to identify and to address protocols for the use of this new technology.
Richard Foss, Executive Vice President of NASBP, said, “NASBP is interested in ensuring the creation of documents and identification of practices that lead to proper risk management practices on construction projects where BIM is used.” BIM is computer technology that permits the construction team to create a digital three-dimensional model of a building that, within associated databases, houses information and data about the different relationships and systems comprising the building. BIM technology offers the promise of making the design, construction, and maintenance of buildings more efficient. As with the adoption of any new technology, BIM is not without risks for project participants. To mitigate risks, the project parties at the earliest opportunity should discuss, plan for, and memorialize agreements concerning use of BIM. To that end, the ConsensusDOCS™ BIM Addendum likely will prove a useful vehicle to encourage project parties to do just that. For more information about ConsensusDOCS™ documents, visit http://www.consensusdocs.org. For free samples of select documents, go to http://www.consensusdocs.org, click on the tab “PURCHASE,” scroll down and select “ConsensusDOCS™ Sample Contracts”. |
||
|
|
||
| Make Your Reservations Now for the 2008 NASBP Regional Meetings |
||
Hotel space is limited for each of the following meetings. NASBP strongly suggests that you make your reservations as soon as possible. The block of rooms available at the special NASBP group rate could sell out before the room cut-off date. Since rooms are held on a first-come, first-served basis, NASBP cannot guarantee an accommodation once the room block is sold out. For more information about each Regional Meeting, click on the links below. 2008 Regions 8, 9, 10, 11 Summer Annual Meeting 2008 Regions 4, 5, 6, 7 Annual Meeting 2008 Regions 1, 2, 3 Annual Meeting 2008 Regions 8, 9, 10, 11 Fall Annual Meeting |
||
|
|
||
| American Bar Association Fall 2008 Forum on Construction Industry Focuses on ConsensusDOCS™; NASBP Members and Affiliates Receive Registration Discount |
||
The Forum also includes a session on the recently released Engineers Joint Contract Documents Committee (EJCDC) construction contracts, that often are used for horizontal construction. This new set of 21 EJCDC documents replaces and supplements 40 EJCDC documents. In addition, the Forum will have a session on the recent construction industry trends, legislative developments, and diversity initiatives. Several presenters slated for the Forum have spoken at past NASBP events including J. William Ernstrom of The Walsh Group, J. Doug Pruitt of Sundt Construction, and Mark McCallum of NASBP. To receive the ConsensusDOCS™ registration discount, select the box next to “Forum Members and Members of ConsensusDOCS™ organizations” on the registration form for the fee of $540 (available only until August 14th) or $590 (after August 14th). Click here for the ABA Construction Industry Forum brochure and registration form. To order the Program materials ($150) without attending the Forum, complete the section indicated on the Registration Form. NASBP is an endorsing organization of the ConsensusDOCS™ coalition (http://www.consensusdocs.org), an unprecedented effort by more than 20 other industry organizations to identify industry best practices and to incorporate such practices in a new generation of consensus industry standard form documents. For more information about NASBP’s involvement in ConsensusDOCS™, go to http://www.nasbp.org/consensusdocs |
||
|
|
||
| Welcome New NASBP Members and New Affiliate |
||
|
NASBP welcomes the following new members and affiliate who have joined the Association since the last issue of Pipeline.New Members
Edgewood Partners Insurance Center Swantner & Gordon Insurance New Affiliate Allegheny Casualty Company |
||
|
|
||
| Treasury Announces Changes to the T-List |
||
The Department of the Treasury’s Listing of Approved Sureties (Department Circular 570) as of July 2, 2007 has been updated to reflect:
For a complete listing of all states where these companies are licensed to transact surety business, please refer to the Circular 570 and its supplements at: http://fms.treas.gov/c570/c570.html and |
||
|
|
||
| SIO’s 2008 ENR Surety Supplement Now Available |
||
 SIO’s annual Surety Supplement published June 16 in Engineering News-Record addresses important issues affecting contractors and construction owners in today’s market such as how contractors can stand out among the increased competition and what project owners can do to protect themselves.Now available to order or download via SIO’s web site, the ENR Surety Supplement also covers such topics as cardinal change and abandonment, qualifying the surety and validating a bond, surety industry efforts to help emerging contractors obtain bonding, The Surety & Fidelity Association of America’s 100-year Anniversary, and the history of the surety industry. |
||
 |
Get Important Surety Industry News & Info
Keep up with the latest industry news and NASBP programs, events, and activities by subscribing to NASBP Smartbrief.
