Performance bond – Construction Law Musings- Richmond, VA

Is Moving Away from Construction Bonding Requirements a Good Idea?

Originally posted 2011-07-25 09:00:48.

Ohio State University Medical Center — Image via Wikipedia

Recently, the legal/construction blogosphere (if that’s still a word) has been discussing a move by Ohio State University to eliminate the need for construction payment and performance bonds on public projects for the university. Needless to say, this move is not popular with certain portions of the construction industry. In fact the Surety and Fidelity Association of America (SFAA) and the American Subcontractors Association (ASA) filed a joint action to require OSU to require bonding on their projects.

This move by OSU is not the only step toward lowering bonding requirements by various states. The Commonwealth of Virginia, my home turf, recently enacted a change in the minimum size of a project on which bonding is required. This change raised the minimum project value from $100,000 to $500,000 and substituted a choice to pre-qualify contractors for public projects.

These matters have been discussed here at Construction Law Musings and by both of my pals Doug Reiser (@douglasreiser) and Chris Cheatham (@chrischeatham) on their respective blogs (linked above) so I won’t get into the specifics of the particular construction projects or the legislation. I do however, want to get thoughts of all of you great readers on the implications of this move.

Continue reading Is Moving Away from Construction Bonding Requirements a Good Idea?

General Indemnity Agreement Can Come Back to Bite You

I talk about payment bonds often here at Construction Law Musings. I talk a bit less about performance bonds and even less about the General Indemnity Agreements (GIA) that are signed by companies and their principals as part of the agreement between a construction company and its bonding company for the provision of these bonds. However, this does not mean that these GIA’s are not important. In fact, these are the agreements that allow a bonding provider to recoup any money paid out pursuant to either a payment or performance bond. Continue reading General Indemnity Agreement Can Come Back to Bite You

Deadline Nears for “Green Performance Bond” Implementation

For this weeks Guest Post Friday at Musings, we welcome Surety Bonds.com, a leading online surety provider. SuretyBonds.com specializes in educating current and prospective business owners about local surety requirements. To keep up with surety bond trends, follow and Surety Bonds Insider blog and @suretybond on Twitter.

Professionals who work in the construction industry know the laws that regulate the market change constantly. Unfortunately, even government agencies are flawed, which means they sometimes establish nonsensical, arbitrary regulations that leave construction professionals even more confused as to how they’re expected to do their jobs.

For example, back in 2007 government agencies in Vancouver had to rework laws that mandated certain green building stipulations in regard to roofs. The city essentially created a law so risky that no insurance company would provide insurance for projects related to green roof building due to the high risk for potential claims. Because insurance companies refused to issue the necessary coverage to contractors, work could not begin on any new projects until the law was reworked. Construction professionals and surety providers alike are worried this kind of hindrance could result when Washington D.C.’s 2006 Green Building Act goes into effect in January.

According to section 6b of the act:

On or before January 1, 2012, all applicants for construction governed by section 4 shall provide a performance bond, which shall be due and payable prior to receipt of a certificate of occupancy.

The bond, which could be worth up to $3 million, would be forfeited if a building should fall short of expected green building standards (such as LEED certification) outlined within the act.

Continue reading Deadline Nears for “Green Performance Bond” Implementation

Oh No! The Surety Went Belly Up! Now What?

Northwest exposure of the Pentagon’s construction underway, July 1, 1942 (Photo credit: Wikipedia)

Here at Construction Law Musings, I have often discussed payment bond claims under the federal Miller Act and its state specific analogs (so called “Little Miller Acts“). Most of these discussions have assumed without actually stating that the surety carrying the payment bond would be solvent and available to pay any judgment against it. Unfortunately, given the general economy (and the construction economy specifically), such an assumption may not be warranted in all cases.

Continue reading Oh No! The Surety Went Belly Up! Now What?

Why Contractors Should Notify Bonding Companies Quickly

With the rise in federal and state construction projects, and the need for contractors and other construction professionals to seek out these projects in the present economy, focus on the Miller Act and your state’s “Little Miller Act” is key. As a quick reminder, the Miller Act essentially requires that a general contractor carry a payment and performance bond on any project it constructs valued at over $100,000. Such bonds assure payment to subcontractors and suppliers and assure completion to the owner (in this case a federal agency or entity).

In order to claim on such a bond, a subcontractor or construction material supplier must give notice to the general contractor (and preferably the surety) within 90 days of the last date of work or material delivery. After that the subcontractor or supplier has a year to file suit should suit become necessary.

As always, a construction contract is involved and that contract likely provides for prejudgment interest on any amounts left unpaid. The interaction between the Miller Act and such a provision was recently examined by the Eastern District of Virginia Federal District Court. In Attard Industries Inc. v. U.S. Fire Ins. Co. the Court faced the question of when prejudgment interest begins to accrue against a surety. The short version of the facts is the following: after judgment, the surety, U. S. Fire, challenged the judgment and argued that the jury awarded prejudgment interest from too early a date when it awarded interest beginning at the date of breach as opposed to the date of the first notice by the subcontractor to the surety.

The Court agreed with U. S. Fire, reasoning that the purpose of the notice is to give the surety a chance to resolve the claim and that a surety has no obligation or ability to control when a demand on its bond is made. Therefore, the Court concluded (along with several jurisdictions cited in the opinion) that prejudgment interest can only be awarded beginning with the date of the first demand and sliced a bit over two years worth of interest from the verdict amount.

The takeaway? If you are a subcontractor or supplier on a federal construction project, notify the surety promptly and demand that it make payment pursuant to the bond. The earlier the better. As this case illustrates, you could lose a significant amount of money on your claim if you don’t.

If you are worried that the notice may be too early (or too late) consult a Virginia construction attorney for advice.

As always, I welcome your comments below. Please subscribe to keep up with this and other Construction Law Musings.