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The U.S. construction industry is projecting continued growth in 2017, according to the Dodge Outlook Report. Notably, public works construction (+6%), institutional building (+10%) and commercial building (+6%) are all forecast for upward momentum.

If public spending continues to increase with funding specifically targeted at transportation, education, and military sectors, construction surety bond needs are expected to increase.

What is a Surety Bond?

A surety bond is an agreement subject to the bond form. The bond is usually required for monetary compensation or failure to perform specified acts referenced in the bond form. A surety bond is a generic name for all types of bonds.

A surety bond is a contract among at least three parties.

  • The obligee – the party requiring the bond,
  • The principal – the primary party who will be performing the contractual obligation,
  • The surety – who assures the obligee that the principal can perform the task.

What is a Construction Surety Bond?

Construction Bonds are typically required by a state or federal government for public works projects in order to provide financial assurance. Construction bonds provide two important benefits: pre-qualification and protection.

Within construction, surety bonds are often required in the form of:

  • Bid Bond – assures that the project bid has been submitted in good faith and that the contractor will enter into the contract at the price bid and provide the required performance and payment bonds.
  • Performance Bond – protects the obligee from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
  • Payment Bond – assures that the contractor will pay specified subcontractors, laborers, and material suppliers on the project.

What are the Benefits of Construction Surety Bonds?

Construction is a risky business. Even the most seasoned contractors can find themselves in the midst of a difficult project and fail to complete the contract. Ultimately, surety bonds provide protection and safeguard owners, lenders, taxpayers, contractors and subcontractors.

The operative questions that most often arise in regard to surety matters include the following:

  • What is the language of the surety agreement?
  • Did the parties, often three parties in fact, meet their obligations in regard to that contract?

Watch insurance expert Bill Hager speak on surety bond issues.

Bill Hager’s Experience as a Surety Bond Expert

Regulatory. Bill Hager’s expertise as to bonds is as follows: he is a former Commissioner of Insurance (Iowa), First Deputy Commissioner of Insurance and Assistant Attorney General assigned on a full-time basis to the Department of Insurance (Iowa). In those capacities, on a daily basis, he had full regulatory oversight and responsibility for and dealt directly with bond insurers and their policies and their obligations to parties to the bond and their good faith duties and their relationship with the parties to the bond.

Beyond Regulation. In addition to Mr. Hager’s regulatory background, he has served or is serving in the following capacities, each of which included daily knowledge of and interaction with bond insurers and their obligations:

  1. General Counsel and Chief Lobbyist for the American Academy of Actuaries,
  2. Chief of Staff at the U.S. House of Representatives,
  3. President and Chief Executive Officer of the National Council on Compensation Insurance (“NCCI”), a major U.S. property casualty insurance entity doing business in some 40 states including California,
  4. elected Member of the Florida House of Representatives (currently) where I serve as a Member and Vice Chairman of the Insurance Committee (among other committees), which has legislative oversight over all insurance operations in the state (as administered by the Florida Office of Insurance Regulation) including those relating to bond insurance and related claims,
  5. nationally certified Reinsurance Arbitrator (ARIAS-US), where I sit as an arbitrator on disputes between (among others) bond insurers and their reinsurers,
  6. attorney admitted to practice in Florida, Illinois and Iowa (all upon examination) with an insurance practice and
  7. past Member of the Executive Committee of the National Association of Insurance Commissioners (“NAIC”).

Click on the link to read more about Mr. Hager’s surety bond insurance expertise.

Disclaimer

Material for this article was taken from a collection of industry sources relating to the subject.

In all of the general statements here, see the state law of the controlling jurisdiction. Every case is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.

This blog is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.