February 2007
 |
 Telling Our Great Story: New Tools At Our Disposal |
I never cease to be amazed by the tremendous efforts put forth daily by NASBP members across the country to benefit the health and vitality of the surety and construction industries. As an NASBP activist and officer, I personally have witnessed our members selflessly contributing their personal time and energy as instructors at the Surety School, as presenters at national and regional meetings, and as advocates at the offices of elected officials. Such efforts inspired me to promise that, should I realize the privilege of becoming the NASBP President, I would take that opportunity “to tell our great story.” And, indeed, I verbalized that promise at last year’s annual meeting. Now I believe that we are positioned to do just that! We have at our disposal new means by which we can communicate our activities and accomplishments and the value that NASBP membership brings to surety professionals.First, NASBP completely redesigned the NASBP web site, www.nasbp.org, so that it is more user-friendly and includes more content about our role and our industry. The redesigned web site also provides more resources at your fingertips. By now you should have received via e-mail, a unique Username and Password that provides you access to the “Members and Affiliates Only” areas of the web site, offering resources and tools to:
Second, NASBP’s key agency contacts were sent a pen emblazoned with the name of our association, NASBP, and the address of our redesigned web site. These pens are available for you to order directly from the manufacturer should you wish to offer them to clients and others to get the “word out” about your affiliation with NASBP. Third, NASBP has developed and issued a new government relations e-bulletin, Focal Fourth, by the Annual Meeting, you will have received in the mail the first issue of the Quarterly Dispatch. This printed color publication will highlight on a regular basis NASBP advocacy efforts, professional development programs, technology and member resources, ongoing projects and accomplishments. It will be released each of the first three quarters of the year and will be followed by the annual Highlights publication. These new vehicles will assist us in communicating our great story, but the most effective means to communicate our story is you! |
|
|
 |
| Don’t Forget What’s in the Bond Form: Recent Court Decisions Hold Sureties to the Stated Terms of their Bonds |
| I might be accused of belaboring the obvious when I state that the obligations of the surety are those defined by the bond it executes. Two recent US district court decisions, however, provide frank reminders about the truth of that statement. The decisions illustrate that courts favor enforcement of unambiguous terms that are accepted and agreed to in contract bond forms and that arguments ignoring clear bond terms may meet with little success.Such was the case in the US District Court, Eastern District of Virginia, which granted judgment in favor of a prime contractor performing a federal construction contract that sued one of its subcontractors and the subcontractor’s surety. The subcontract included language to the effect that the contractor could make changes in the scope of the subcontract at any time without having an obligation to provide the surety with notice. Further, the subcontract payment and performance bonds incorporated by reference the subcontract and included language stating that “any increase in the Subcontract amount shall automatically result in a corresponding increase in the penal amount of the bond without notice to or consent from the surety, such notice and consent hereby being waived” and that “any alterations which may be made in the terms of the subcontract or in the work to be done under it…shall not in any way release the Subcontractor and the Surety…from their liability hereunder, notice to the surety of any such alteration…being hereby waived.”
The original price of the subcontract work was just over $170,000.00, and the bonds were issued in that amount. The subcontract also included seven options for additional work, one of which amounted to slightly more than $1.5 million, to be exercised at the discretion of the contractor. During the course of performance of the subcontract, the contractor executed eight additive change orders, increasing the subcontract price to more than $2.4 million. The change orders included amounts for additional bond premiums. When multiple parties made claims against the contractor and its surety alleging that they had not been paid by the subcontractor for work performed, the contractor tendered defense of the claims to the subcontractor’s surety, which rejected the tender. Thereafter, the contractor sought judgments against the subcontractor and its surety seeking, among other things, that, as a matter of law, the penal amounts of the bonds increased commensurate with the amounts of the additive change orders and that the subcontractor and its surety were not discharged from the subcontract bond obligations based on material alterations of the bond risk. In both instances, the court agreed with the prime contractor’s assertions. The court noted that the escalation provisions in the bonds were unambiguous and explicit that the penal amounts would increase with each additive change order executed by the contractor. The court also noted that, although under Virginia law a surety’s bond obligation may be discharged by a contract alteration that materially increases the surety’s risk without the surety’s knowledge or consent, the language contained in the subcontract bond form clearly demonstrated that the surety intended to waive any discharge defense. The court noted further that the surety executed the bond forms knowingly and voluntarily and did not introduce any evidence to suggest that the waiver language should not be given its plain meaning. In the second case, decided by the US District Court, Southern District of Iowa, the surety unsuccessfully contended that informal communications between the contracting officer and the project manager served to modify the explicit terms of the construction contract and the statutory payment bond form to authorize separate, limited payment bonds. The surety furnished Miller Act bonds to a prime contractor awarded a contract to design and to construct a laboratory for a federal agency. The contract obligated the contractor to furnish performance and payment bonds in the amount of 100% of the original contract price. The contractor decided to phase the contract for pricing and bonding purposes and furnished two payment bonds in amounts reflecting the costs of the foundation and structural steel packages of the contract. The terms of the statutory bonds were unaltered. A third payment bond in an amount reflecting the value of the remaining construction work never was furnished by the contractor. Thereafter, certain unpaid subcontractors performing work unrelated to the foundation or structural steel packages sought payment for work completed from the contractor and its payment bond surety. The surety countered by arguing that the payment bonds solely were for the foundation and structural steel work and that the subcontractors’ work was outside the scope of these payment bonds. Noting that the language of the construction contract required a payment bond of 100% of the contract price, that the payment bond forms unambiguously covered all project work, and that the statutory purposes behind the Miller Act are “highly remedial,” the court was not persuaded by the surety’s argument that the claimants’ work was outside the scope of the payment bonds. The court commented that “[t]o construe the informal communications between the project manager and the contracting officer about separate payment bonds so as to deny the plaintiff subcontractors the protection the clear terms of the bonds would otherwise afford seems the antithesis of the liberal construction of the bonds and at odds with their statutory purpose.” Don’t forget what’s stated in the bond form. These decisions give added resonance to that statement. These materials are provided to NASBP members solely for educational and informational purposes. They are not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels, and should not act upon any information contained in these materials without such advice. |
|
|
| NASBP Joins Coalition to Support Repeal of 3-percent Tax Withholding On Payments to Contractors Doing Public Work |
| NASBP recently joined the COST (Construction Organizations for Sensible Taxation) Coalition, to support efforts to repeal section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222). Click here to read the NASBP General Counsel’s article in the 2006 Sept./Oct. Issue of Pipeline for more details on this onerous requirement.NASBP is among 17 surety and construction organizations that have joined the COST Coalition and that support a bill recently introduced in the U.S. House of Representatives, H.R. 1023. The Bill mandates the repeal of section 511 from the Act. Section 511 is a sweeping new requirement mandating a 3-percent tax withholding on payments to contractors for goods and services provided to federal, state and local governments in 2011.
Members of the Coalition that represent a total of 7.2 million employees, recently sent a joint letter thanking two Congressmen, Rep. Kendrick Meek (D) FL-17th and Rep. Wally Herger (R) CA-2nd, for introducing H.R. 1023. Click here to view the letter signed by NASBP and other members of the Coalition. The Coalition formed out of concerns about the potentially negative impact on the construction industry and the unintended consequences of this requirement on construction companies that receive contracts or other forms of payment from the government. The negative toll of the tax on construction is grossly disproportionate. Three percent is larger than the profit margins realized under many government contracts and will significantly impede cash flow, thereby jeopardizing a firm’s ability to compete for business, or even complete projects. NASBP is concerned that the tax withholding may disadvantage small construction firms and may make public construction less desirable from the contractor’s perspective, possibly resulting in less bidder or proposer interest and, therefore, less competition for public projects at all levels. |
|
|
| NASBP Educates Contracting Officers on Powers of Attorney |
| At the request of the Surety Bond Branch, Financial Management Service, U.S. Department of the Treasury, NASBP addressed recent regulatory changes affecting Powers of Attorney. The presentation was part of a full day seminar on the dynamics of surety bonds conducted on February 1 in College Park, Maryland. In attendance were more than 60 contracting officers and government officials from throughout the U.S. Click here to access the PowerPoint that NASBP’s General Counsel, Mark McCallum, presented to the group.Additional topics addressed at the one-day seminar included the FMS Surety Bond Process, Surety Bond Underwriting, Miller Act Bonds, the Federal Acquisition Regulations (FAR), Individual Sureties and the FAR, and the Small Business Administration Surety Guarantee Program.
Other presenters included representatives from Arch Insurance Company of Philadelphia, Penna., The Surety & Fidelity Association of America, the Department of the Navy, the General Services Administration, the Small Business Administration, and the Financial Management Service. |
|
|
||||||||
| NASBP 2007 Meeting Schedule and Surety School Awards |
||||||||
| Register and make your hotel reservation for the 2007 Annual Meeting & Expo while there is still time.Hotel space is almost SOLD OUT at the JW Marriott Desert Ridge Resort & Spa, so book your room reservation for the NASBP Annual Meeting immediately!
Click here for more information. Limited space is still available for the NASBP 3-Day Risk Workshop. Click here for more information. Level I and II Surety School Graduations The William J. Angell Level I and II Surety School was at maximum capacity this year! Our esteemed faculty teams: Level I ~ Matt Cashion/Erle Benton, Tom Padilla/Dave Castillo and Level II ~ Bob Shaw/Jim Lareau and Ed Heine/Ralph Pulver, in addition to Nancy Ellis conducting the Commercial Surety session, all shared their expertise with students from around the country. Additional faculty participating in the School were Jack Curtin, Larry McMahon and current NASBP President Steve Cory. The Level I Yellow Team’s Outstanding Student was Sandy Yates of Gale, Smith & Co., Inc in Brentwood, TN. Khoi Tran of HCC Surety Group in Orange, CA was named as the Level I Red Team’s Outstanding Student. Level II Blue Team’s Outstanding Student was Todd Schaap of Shorewest Surety Services, Inc. in Racine, WI. The Green Team’s Outstanding Student was William Chapman of the Insco/Dico Group in Sewickley, PA. Photos of award recipients who were present are below. Congratulations to all graduating students and our thanks to an outstanding faculty for sharing their time and talents!
|
|
|
| 2006 CFMA Survey Now Available at a Discount to NASBP Members |
 Through a special arrangement with the Construction Financial Management Association (CFMA), NASBP members can save from $20 to $74 if they choose to purchase the CFMA 2006 Construction Industry Annual Financial Survey and associated products.For another consecutive year, NASBP has entered an agreement with CFMA to provide NASBP members a discount on their purchase of the CFMA annual survey and related products. The CFMA survey, compiled and released by CFMA for the past 18 years, provides financial and benchmarking data on construction industry practices and contractors’ financial data.
The survey reports comprehensive aggregate information organized by contractor type, dollar volume, and geographic region including:
This year’s survey exceeds 300 pages and includes new hot topic information The CFMA survey products and their discounted prices for NASBP members are: 1. Survey in hard copy, on CD, or as a pdf file that is sent in an e-mail $334 (NASBP members save $59) To learn more about the survey or to order, go to CFMA’s web site at Questions about the CFMA survey and related products can be directed to Brian Summers, Chief Operations Officer of CFMA, at Phone: 609-452-8000 x227, Fax: 609-452-0474 or e-mail: bsummers@cfma.org |
|
|
| SuretyPAC Launches Campaign for 2007/2008 Election Cycle |
| 2007/2008 marks a new and very important election cycle. The 2008 election will involve coast-to-coast key states for President, the U.S. Senate, the U.S. House of Representatives and state legislatures. All demographics of voters will be important and contests will be decided on a wide array of issues. To that end, NASBP political action committee support of candidates who support the surety industry becomes even more important as the political issues continue to expand during this election cycle. How much do you know about NASBP’s federal political action committee, the SuretyPAC? See the facts about the SuretyPAC below.NASBP SuretyPAC Facts
1. The NASBP SuretyPAC is the only federal PAC that is 100% devoted to representing the surety industry and establishing and nurturing relationships with candidates running for congressional office. Click here for the Top NASBP issues 2. The NASBP SuretyPAC supports candidates, regardless of their political party, who understand the value that surety bonding brings to the efficient functioning of government and commerce, benefiting their communities and constituencies. To find out about the 2006 election outcomes and upcoming elections, click here. To find your elected officials, click here. 3. SuretyPAC contributors will have the opportunity to recommend and comment on possible candidates for the dispersal of funds. In addition, several contributors will have the honor of personally delivering a check from the SuretyPAC to a chosen candidate from their state or congressional district. 4. Since 1995, SuretyPAC has distributed over $127,000 to congressional candidates. These disbursements are vital for NASBP to have access to members of the U.S. Congress and influence federal legislative decision-making. The size and importance of SuretyPAC continues to grow every year and with the continued generosity of NASBP members it will continue to strengthen the industry. 5. All contributors and their agencies are recognized by NASBP in several ways, such as with a sticker on the individual’s name badge at the Annual, Midyear and Regional meetings and with their name and agency published in Pipeline. The contributors’ names and companies are also posted in a public area at these NASBP meetings. The NASBP SuretyPAC levels of recognition for individual contributions are:
6. To qualify for a badge sticker on your name badge at upcoming NASBP meetings in 2007 and 2008, SuretyPAC contributions must be made during this two-year election cycle, 2007/2008. Contributions made this year carry over to 2008. Those who wish to contribute on an annual basis, rather than on a cycle basis, are always welcome to do so. Any amount may be contributed, but stickers only are provided to those who contribute $100 or more. 7. NASBP also recognizes agencies whose combined contributions total $1000 and more. Agencies whose employees’ contributions total $1,000 or more are given special recognition as the “$1000 PLUS” Agencies. These agencies’ names are also posted in a public area at NASBP meetings. 8. Anyone may contribute to the SuretyPAC. The only requirement is that contributions must be in the form of a personal check. You may contribute if your agency has not been authorized. Authorization gives permission to the SuretyPAC to directly solicit designated employees of a particular agency. 9. You can make a personal contribution to the SuretyPAC at any amount up to $5,000 in a calendar year. To contribute, ask NASBP for a personal contribution form. Contributions from corporations are illegal. Federal law does not permit political contributions to be deducted from your Federal or State taxes. 10. The Federal Election Commission (FEC) puts restrictions on who the SuretyPAC can solicit for contributions. The FEC requires trade association PACs, such as the SuretyPAC, to receive permission from member agencies to solicit its employees for contributions. An agency can only authorize one PAC each year. The SuretyPAC is also prohibited from soliciting the employees of any nonmembers and affiliated surety companies. 11. To authorize the SuretyPAC to solicit voluntary contributions from the executive or administrative personnel of your agency for this calendar year, contact NASBP and ask to complete an authorization form. Your agency cannot have approved authorization by any other trade association during this calendar year. If you have questions about the SuretyPAC or how you can authorize your agency, contact Kathy Hoffman at khoffman@nasbp.org |
|
|
| Treasury Announces Changes to the T-List |
| The Department of the Treasury’s Listing of Approved Sureties (Department Circular 570) has been updated to reflect:1. As of June 30, 2006, the name change of International Business & Mercantile REassurance Company to Old Republic General Insurance Corporation (NAIC# 24139).
2. Additional surety licenses for GRANITE RE, INC. (NAIC# 26310). The following states have been added: IL, IA, MS, MO, NE, TN, WY. For a complete listing of all states where these companies are licensed to transact surety business, please refer to the Circular 570 at: http://fms.treas.gov/c570/c570.html |
|
|
| FMS Increases Surety Company and Reinsuring Company Fees |
| The Department of the Treasury, Financial Management Service (FMS) increased surety companies’ and reinsuring companies’ application and renewal fees as a result of an analysis of costs associated with the Surety Bond Branch. The FMS announced in the January 3, 2007 Federal Register that these fees cover costs incurred for its services to qualify corporate sureties to write federal business. Click here for the Federal Register notice, Vol. 72, No. 1 at 196.The new fee rate schedule, effective December 31, 2006, is as follows:
1) Examination of a company’s application for a Certificate of Authority as an acceptable surety or as an acceptable reinsuring company on Federal bonds—$8,025. 2) Determination of a company’s continued qualification for annual renewal of its Certificate of Authority—$4,710. 3) Examination of a company’s application for recognition as an Admitted Reinsurer (except on excess risks running to the United States)—$2,835. 4) Determination of a company’s continued qualification for annual renewal of its authority as an Admitted Reinsurer—$2,010. Questions concerning this notice should be directed to the Surety Bond Branch, Financial Accounting and Service Division, Financial Management Service, Department of the Treasury, 3700 East West Highway, Room 6F01, Hyattsville, MD 20782, or Phone: (202) 874–6850. |
|
|
| NASBP Welcomes New Members |
| NASBP welcomes the following new members who have joined the Association since the last issue of Pipeline.Wells Fargo Insurance Services of Arizona www.wellsfargo.com Phoenix, AZ Key Contact: Virginia Bradley Jasper Surety Agency LLC Skinner & Company |
|
|
| Briefly Noted |
 POSITIONS
|
|
|
| SIO Changing Perceptions with Outreach Efforts |
| In 2006, the Surety Information Office (SIO) continued to be a valuable resource on contract surety bonds and was instrumental in changing perceptions about surety bonding.For example, Construction Owners Association of America (COAA) members are more knowledgeable and understanding of surety bonds thanks to SIO involvement in this organization.
This involvement included participation in COAA meetings, sponsoring tote bags for registration materials, and providing surety speakers to members. At-A-Glance (2006) Likewise, Construction Management Association of America (CMAA) members are hungry for more information about surety bonds and are happy to see the surety industry’s participation in organization meetings. Members who visited SIO’s exhibit at CMAA’s annual conference were interested in a number of topics including capacity, partial bonds, and warranty issues. Risk Management Association (RMA) members are interested in surety bonding, as indicated by calls generated by SIO-written articles published in RMA Journal, questions from members visiting SIO’s exhibit booth at RMA’s conference, and industry reports that more lenders are requiring bonds as a condition of construction loans. SIO also received positive response to a “Banking & Bonding” panel presentation and two Webinar sessions on surety, which will be converted into a CD for bankers in 2007. Requests Products Distributed Referrals Web Site Visitors File Downloads AGC Surety Claims Guide – 9,764 To download these and other materials, visit SIO’s online store. Presentations Articles Published SIO is making headway with these and other organizations, and you can, too! Contact Executive Director Marla McIntyre or Communications Manager Marc Ramsey at (202) 686-7463 or visit SIO’s Web site at www.sio.org for ready-to-deliver PowerPoint® presentations, free educational materials to distribute, or to learn about opportunities in your area. |
|
|
|
Get Important Surety Industry News & Info
Keep up with the latest industry news and NASBP programs, events, and activities by subscribing to NASBP Smartbrief.
