Jefferson County, Missouri, has made some changes to its contractor bond requirements, which went into effect January 1. Previous Jefferson County contractor bond requirements mandated that construction professionals file a $10,000 Missouri surety bond for various construction trades. Jefferson County now requires construction professionals to file a $25,000, and a few new trades now need to be bonded.

Trades that now require a $25,000 Jefferson County, Missouri, contractor license bond include:

• Backflow Preventive Device Tester
• Communications
• Drain-Layer
• Electrical
• Elevator Electrical
• Industrial Electrical
• Lawn Irrigation Installer
• Mechanical
• On-Site Sewer System Designer
• On-Site Evaluator
• Sprinkler Fitter

SuretyBonds.com can issue updated Jefferson County contractor bond forms quickly and easily.

Get a Jefferson County Missouri contractor bond

The story of David versus Goliath is an age-old tale, and one that’s all too common in the construction industry. Unfortunately, the real-world Davids rarely emerge from battle as the winners, especially when contract bond requirements limit their access to construction projects. Smaller contractors often have trouble funding, or even qualifying for, the surety bonds they need. When contractors are unable to purchase surety bonds as required by law, they’re automatically disqualified from many publicly funded construction projects. Because large contracting firms usually don’t have this problem, bonding requirements can create an unintentional monopoly in certain situations. Such was the case with a recent controversy in Louisiana.

On Nov. 1, 2011, Louisiana’s Hazard Mitigation Grant Program instituted a rule that required contracting firms to file performance bonds with the state before beginning work on a home elevation project. The program has funded numerous projects to restore structures in the state following the aftermath of Hurricane Katrina.

Gov. Bobby Jindal originally proposed the bonding rules on August 19, 2011, after numerous reports of fly-by-night contractors who disappeared after receiving payment for home elevation projects. Other contractors left behind shoddy work or failed to complete jobs altogether, leaving homeowners and the state to deal with additional financial loss.

According to an article by the The Times-Picayune out of New Orleans, the state said the goal of the new surety bond rules was to prevent contractors from “collecting an 80 percent advance payment on a grant only to walk off the job without finishing.”

However, small contracting firms were unable to find bonding companies who would issue them the needed bonds. Similarly, some who were able to qualify for the bonds were ultimately unable to pay their steep premiums. This gave larger contracting firms an advantage at securing valuable contracts, which is a common problem state agencies face when setting surety bond requirements.

As a result of the many complaints smaller contractors file with the state, an alternative to the bonding requirement was added before the new rules went into effect on December 1, 2011.

To qualify for the bonding exemption, contracting firms

• must show proof that they cannot get the required surety bond
• must get the homeowner’s approval to waive the bonding requirement
• can only collect 25 percent of the payment up front (rather than 80 percent)
• may only work on a maximum of four projects at one time
• must meet new insurance and warranty rules

In an interview with The Times-Picayune, State Commissioner of Administration Paul Rainwater said the updated rules would “protect homeowners without stifling competition or giving larger firms an unfair advantage.”

South Carolina congressman Mick Mulvaney issued the following press release on December 2.

Hanna, Mulvaney Introduce Surety Bond Bill to Safeguard Small Businesses

Bill provides extra protection to construction industry subcontractors, suppliers

Washington, Dec 2— While the nation’s unemployment rate hasn’t dropped in months, one of the hardest hit industries remains the construction trades.

U.S. Representatives Richard Hanna (R-NY) and Mick Mulvaney (R-SC) introduced legislation that will help ease the worry of subcontractors and suppliers about whether or not they will be paid for their services. Hanna serves on the House Small Business Committee with Mulvaney who is chairman of the Contracting and Workforce Subcommittee.

H.R. 3534, the Security in Bonding Act of 2011, will protect small businesses and taxpayers by strengthening the bonding process and removing opportunities for fraud and abuse. The federal government allows contractors to pledge collateral directly to the government in lieu of furnishing corporate surety bonds.

The Security in Bonding Act of 2011 closes a loophole that allowed unscrupulous businesses to offer inadequate assets to back a bond. The lack of oversight on non-corporate sureties has resulted in a number of documented cases where assets pledged to back the bond have been illusory or insufficient.

Among the highlights of the bill:

• Requires non-corporate sureties to pledge specific and secure assets as required from others providing collateral to the federal government
• Requires those assets be held by a government entity, with the ability to accrue interest, to ensure payment can be made in the event they are needed.
• Allows the government to ensure payment of subcontractors and suppliers.

Hanna and Mulvaney say it’s time to close the loophole and protect honest small businesses.

“The Security in Bonding Act will protect the construction industry from bad practices that hurt their bottom line and hinder their ability to grow and create jobs,” Congressman Hanna said. “I spent more than 30 years in the industry and saw first-hand the damage that can occur when inadequate bonding was secured for a project.  It hurts everyone, particularly the small businesses suppliers and subcontractors who provide goods and services — yet risk not being paid for their work.

“This common-sense fix will strengthen the integrity of the bonding process.  The construction industry has been one of the hardest hit sectors since the beginning of the economic downturn.  This legislation provides more certainty and security for small businesses that deserve to get paid for their work.  These companies should focus on how to expand and create jobs — rather than worry about whether or not they will get paid.”

“The inability of government contracting officers to determine the real value of non-corporate security bonds has caused significant harm to small business, subcontractors and suppliers, and taxpayers,” Chairman Mulvaney said. “This legislation will increase transparency and restore the faith of long-overlooked subcontractors and suppliers — who no longer have to fear they will not receive payment to claims they are owed. The Security in Bonding Act will cut down on fraud and abuse in the non-corporate surety market, providing more certainty for the thousands of businesses who contract with the federal government.”

This information was originally posted on the U.S. Small Business Administration’s events calendar.

Surety Bond Webinar

Event Topic
Obtaining a Surety Bond

Event Type
Webcast

Event Details
Are you ready to expand your business? Contractors with bonding are in a better position to complete for larger construction opportunities. Learn how to prepare your business for bonding, and much more in this free webinar covering:

• What is bonding?
• How to qualify for bonding
• Criteria for selecting a bond agent
• How bonding benefits contractors
• Why do I need a working capital line of credit?
• How to market yourself to surety companies
• How tools like the SBA Surety Bond Guarantee Program can help you qualify for surety bonds

This webinar is for
small construction firms who want to strengthen their ability to compete in public sector construction

When
Thursday, September 22, 2011 10:00 AM – 11:00 AM

Location
Parkview Tower
1150 First Avenue
Suite 1001
King of Prussia, PA, 19406, USA

Event Contact
Paula K. Watts
(610) 382-3086

The National Association of Surety Bond Producers announced this virtual seminar in a September 6 e-mail sent to NASBP members.

Payment and Performance Bond Issues Associated with Federal Contracts — Tuesday, September 13 at 2 p.m. Eastern Daylight Time

Participate in this seminar to hear about important consideration for sureties in federal contracting. Attendees will learn about payment and performance bond issues associated with contracts with the United States federal government. The presentation will address topics such as pay-if-paid provisions, arbitration, requirements for waiving Miller Act claims, conditions for bringing claims, and post-completion liabilities as public owners seek to add new requirements to the scope of construction projects.

REGISTER TODAY

Eric Nelson is a partner with Smith, Currie & Hancock LLP and practices in the areas of engineering & construction and government contracts. He represents clients on a variety project types, including power and process, infrastructure, health care, manufacturing, and commercial. Mr. Nelson has tried cases in federal and state courts throughout the county and before various federal boards of contract appeals. He also represents clients in alternative dispute resolution procedures and has arbitrated claims ranging from 1 million USD to over 100 million USD, nationally and internationally. In addition to dispute resolution, Mr. Nelson frequently advises clients on front-end project transactions and on federal construction issues, such as the False Claims Act, small business programs, cost and pricing, compliance, and claims.

NASBP Virtual Seminars address topics of immediate relevance to our membership. They are available exclusively to NASBP members, affiliates, and associates.

Hazard Mitigation Grant Program funds can be used by Louisiana homeowners to elevate their houses, which could prevent flooding losses such as this one that resulted from Hurricane Katrina.

Since Hurricane Katrina tore through the Gulf Coast in 2005, homeowners in Louisiana have been fighting to make sure their homes are safe from future natural disasters. Through the Hazard Mitigation Grant Program, the Federal Emergency Management Agency (FEMA) provides grants to states that then allocate funding to eligible applicants. Individuals then use the funding to implement long-term hazard mitigation measures after a major disaster declaration.

According to the Louisiana Homeland Security & Emergency Preparedness,

The purpose of the program is to reduce the loss of life and property due to natural disasters and to enable mitigation measures to be implemented during the immediate recovery from a disaster.

A number of Louisiana homeowners who live in areas prone to flooding have been using the funding to elevate their houses. Unfortunately, a number of recent reports tell of contractors who have disappeared after receiving payment, leaving behind shoddy construction or failing to complete jobs altogether.

To combat the continuing problem, on Friday Aug. 19 Gov. Bobby Jindal issued an executive order that outlined new consumer protection standards for the $750 million program. Among the changes to be made include a surety bond that contractors would have to post before they begin work on projects funded by the program.

The surety bond regulations, which would include a requirement for the bond’s penal sum, have not yet to be established.

Vehicles travel the Pennsylvania Turnpike, which extends 532 miles.

Each year different stretches of the 532-mile-long Pennsylvania Turnpike undergo various improvements. To ensure satisfactory project completion, contractors must fulfill certain legal requirements before construction can begin. To increase the financial security that guarantees timely and accurate work, the Pennsylvania Turnpike Commission recently revised stipulations that outline acceptable surety providers.

Upon being awarded a contract to work on a Pennsylvania Turnpike project, contractors must post separate performance and payment bonds that are each worth 100% of the contract price. The previous rule had only required the executing surety provider to be

legally authorized to transact business in the State and satisfactory to the Secretary.

The new revision, however, also requires a contractor’s surety provider to

• have an A.M. Best financial strength rating of at least A-
• be classified as a financial size category of IX or greater

A.M Best’s financial strength ratings are based on an insurance agency’s financial strength and creditworthiness. The assigned rating indicates an agency’s ability to pay claims. The higher the rating, the more financially stable the agency. A rating of A++ or A+  is considered “superior, and a rating of A or A- is considered “excellent.” A.M. Bests’s insurance company a financial size categories are based on adjusted policyholders’ surplus (PHS), which indicates a an insurance company’s size. A PHS ranking of IX means the company has $250 million to $500 million.

The Commission combines these minimum requirements, to verify that a surety provider has sufficient financial capacity to provide the necessary policy limits to insure risks associated with contract bonds. This means that the Commission will only accept surety bonds from underwriters that have a financial strength ranking of at least A- and an adjusted PHS of at least $250 million.

Because some surety providers might not meet these new requirements, contractors looking to get bonded for Pennsylvania Turnpike projects might have to search for surety providers that meet the Commission’s new expectations.

An August 19 post by the Associated Pennsylvania Contractors recommended that issues and comments regarding the revised surety requirements be forwarded to Leonard Bellanca in the APC office.

The Associated General Contractors of America (AGC) released the following information on August 22.

The 48 page book costs $40. AGC members can get the book for a discounted price.

AGC and the National Association of Surety Bond Producers (NASBP) released a new, revised edition of the construction and surety industries’ primer on the surety bond product, The Basic Bond Book.  The construction and surety industries have relied for two decades on this resource to introduce contract surety bonds to those entering the construction and surety industries.

AGC and NASBP collaborated on this 2011 edition. The principal authors of this edition included NASBP Professional Development Committee members: Erle Benton of Cretcher Heartland Inc., Matt Cashion of The Cashion Company, Inc., David Castillo of The Gray Casualty & Surety Company, and Bud Herndon of CNA Surety Corporation.

For more information, please contact Marco Giamberardino at (703) 837-5376 or giamberm@agc.org.

When contractors fail to complete a construction project according to contract, the surety bonds executed for the job can be used to compensate the project owner. But what happens when contractors ignore laws and avoid purchasing required surety bonds?

Maryland’s Consumer Protection Division recently dealt with such a case. An August 17 press release from the agency said an investigation revealed that Steven Hessler and his company, Charm City Builders, Inc., violated the state’s Custom Home Protection Act. The act requires contractors to guarantee project completion in one of two ways:

• by putting a client’s payment in an escrow account
• by maintaining a surety bond that covers the client’s payment

According to the Maryland Custom Home Protection Act,

The surety bond obtained shall be conditioned on the return of the sum to the buyer in the event the buyer becomes entitled to the return of the money.

The act later specifies that anybody who knowingly fails to maintain a surety bond or escrow account as required is guilty of a felony. The Division also discovered that Hessler’s firm had violated the Home Builder Registration Act and the Consumer Protection Act by failing to build a home as promised and then neglecting to return the client’s money. To enforce these acts, the Division ordered Hessler refund a total of $111,637.74 he had collected from multiple clients. Hessler was also ordered to pay $9,000 in penalties and $4,026.69 for investigation costs.

Because Hessler had no escrow account or surety bond in place to guarantee the potential need to refund such claims, how he will pay the hefty fines remains to be seen.

Residents of Sequim, Washington, have expressed concern about an unfinished construction project in the Fair Weather subdivision. They want the city to ensure the project will be completed as promised. Unfortunately, what remains of the project’s Washington surety bond might not be enough to pay for the unfinished work. If not, the city faces a difficult decision, as the remaining work centers on a private road for which the city claims no responsibility.

The problem becomes further complicated since the city released the project’s developer, Gerald Engler, of all but $138,347 of his $840,336 contract bond for the project back in 2008. At the time the amount was considered a sufficient guarantee, but three years have since passed.

As a result, both residents and city officials worry the remaining bond amount won’t be enough to fund the project’s completion. The following project tasks have yet to be completed in the subdivision:

• moving currently overhead utilities underground
• placing an asphalt overlay on interior streets
• widening West Sequim Bay Road
• creating an extension of future utilities for future project phases

Residents have made it clear that they expect the city to resolve the problem. According to an article by the Sequim Gazette,

“Robin Auld, president of the homeowner’s association, said the city shouldn’t hold Fair Weather residents responsible for any underfunding as a result of the bond’s release.

‘Why should we be responsible when you cut loose $700,000 of bond money?” Auld asked. “We don’t want to be held liable for any funding.’”

Failure to complete the project according to contract might not only leave current residents disgruntled, but also keep prospective residents from moving to the area.

Unless the remaining $138,347 bond can cover the remaining construction costs, city officials and local homeowners could find themselves at odds regarding the unfinished work.