PIDC’s Small Contractor Workshop Series Tips

With more construction opportunities becoming available in the public and private sectors in the City of Philadelphia, PIDC hosted a 4-part Construction Workshop series to provide small contractors with the necessary tools for lasting success. Part 3 of the series was titled Understanding Contract Surety Bonding: An Orientation for Small Contractors led by strategic partner Ellen Neylan, President of Surety Bond Associates. This workshop covered the fundamentals of qualifying for construction bonding, determining costs, positioning your company for increases in bonding lines, and avoiding defaults.  It also covered how to choose the right bonding company for your growing needs.

PIDC offers a specific financing product for small contractors. The Contract Line of Credit Loan provides support to small, minority, women, veteran and disabled-owned businesses that need a line of credit to fund contract-related working capital.

To learn more: PIDC Small Contractor Workshop Series

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Bonds: An Important Weapon In Any Contractor’s Arsenal

It is vital that construction contractors, regardless of tier or trade, understand the basic principles of contract surety bonds. An understanding of how bonds are used in construction; and, importantly, how the surety company prequalifies the contractor is critical. Surety Bonds are mandated by various federal, state and local laws, but may also be required by the private sector as well. Recently, as part of WIPP’s Give Me 5 webinar series, bonding specialist Ellen Neylan owner of Surety Bond Associates, along with construction counsel, Jennifer M. Horn and Maria Panichelli of Cohen SegliasPallas Greenhall & Furman PC, discussed these issues in detail. Below are some highlights of the discussion.

The Performance Bond secures the contractor’s promise to perform the contract in accordance with its terms and conditions, at the agreed upon price, and within the time allowed. The Payment Bond protects certain laborers, material suppliers and subcontractors against nonpayment. Since mechanic’s liens cannot be placed against public property, the payment bond may be the only protection these claimants have if they are not paid for the goods and services they provide to the project.

In order to obtain a bond, the contractor must be prequalified. Sureties should not bond a contractor that does not meet their prequalification standards. The surety company’s pre-qualification process carefully analyzes the contractor’s entire business operation, much like a bank, because the surety is backing the promise that the contractor will perform the contract. The surety determines the contractor’s ability to meet current and future contract and financial obligations.

The parameters of bonding on a project are often dictated by the law. For example, the Federal Miller Act requires surety bonds for the “construction, alteration, or repair of any public building or public work of the United States for an amount greater than $100,000.” When filing surety claims against Miller Act bonds, subcontractors should be aware that timing is critical. Even though no notice is required, first tier subcontractors must wait 90 days from non-payment to give the bond principal a chance to make payments. In addition, all suits must be filed within one year of last work performed or materials supplied. It’s very important that the claim notice clearly state the amount being claimed, the name of the party to whom labor or supplies were provided, and that the subcontractor is making a formal claim against the bond principal.

The Surety will not pay claims without regard to their merits, but it should be expected to respond to claims promptly and, if denying a claim, offer an explanation. Finally, the Surety, with the aid of legal counsel, can assert all defenses of its bond principal, unless precluded by bond or contract language. Examples of defenses might include: breach of contract; recoupment/setoff; and failure to mitigate damages.

For more detailed information about this important topic, tune in to the recent webinar:

Construction – Bonding and Liens

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Surety Bond Associates Welcomes Commonwealth Insurance Company Customers

Surety Bond Associates is pleased to announce their commitment to former customers of Commonwealth Insurance Company by replacing their cancelled surety bonds.

Surety Bond Associates, also located in Bala Cynwyd PA, is a full service surety bond agency providing specialty surety bond services to small and mid-sized contractors, including dedicated programs and services for minority, women and veteran owned contractors.

“We are thrilled to welcome former customers of Commonwealth Insurance Company to the Surety Bond Associates family”, said Ellen Neylan, President of Surety Bond Associates. “As a veteran of the surety business for over 25 years, I understand how frustrating it must be for these businesses to navigate through the process of finding a surety partner willing to help them pick up the pieces and quickly replace their surety bonds. We represent numerous surety companies and are prepared to begin servicing the bond needs of former Commonwealth Insurance customers immediately.”

Contact Surety Bond Associates

For more information, contact Ellen Neylan at 610-617-1052 or ellen.neylan@suretybondassociates.com.

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Commonwealth Insurance Company of Bala Cynwyd PA in Liquidation

The Pennsylvania Insurance Department issued an order on March 19, 2014 to liquidate the Commonwealth Insurance Company of Bala Cynwyd PA.  The order was unanimously approved by Commonwealth Insurance’s board of directors and sole shareholder.

The failure cancelled surety bonds of many construction contractors and other businesses effective April 19, 2014, possibly leaving taxpayers liable to cover some of the firm’s losses.

Surety Bond Associates, also located in Bala Cynwyd PA, is a full service surety bond agency providing specialty surety bond services to small and mid sized contractors with a particular focus on minority, women and veteran owned contractors.  Surety Bond Associates is prepared to service the bond needs of former Commonwealth Insurance customers.

Contact us today to expedite replacement of your bond program.

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Maryland Church Fights Unlicensed Individual Surety Over Bond on Failed Project

The Korean Seventh-day Adventist Church was supposed to be in business in Columbia by now.

The church’s 150 members signed a deal, put money down and watched bulldozers roll. But construction stopped in late 2008 and the congregation never recouped its investment. Thanks in part, church officials say, because a bond that was supposed to insure the project didn’t pay off. The worshippers now borrow a building from a sister church, meeting in the afternoon after the other congregation worships in the morning.

Where prayer fails, sometimes regulation succeeds. The church’s problems are being held out as evidence that the state needs to increase oversight of wealthy individuals guaranteeing small contractors who can’t get backing from licensed corporate surety companies.

These “individual sureties” and their brokers are pushing back, seeking legislation that would allow them to continue to back construction without regulation by the Maryland Insurance Administration.

For more information, click here

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Higher Surety Bond Guarantees will Help Small Businesses Secure Larger Contracts

The U.S. Small Business Administration has made regulatory changes to its Surety Bond Guarantee Program, including higher surety bond guarantee limits up to $10 million that will help construction and service sector firms secure larger contracts for work in areas impacted by disasters.

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California Contractors LLC Business Licence Bond

SB 392 requires contractors organized as limited liability companies (LLCs) to post a $100,000 bond as a condition of an LLC business license. The bond is for the benefit of any employee damaged by his or her employer’s failure to pay wages, interest on wages or fringe benefits. Further, if the licensee is a party to a collective bargaining agreement, the bond must cover welfare fund contributions, pension fund contributions and apprentice program contributions. The new law exempts qualifying individuals from the contractor license bond requirements if the individual held a 10% membership interest in a limited liability partnership. Current law requires a surety bond in the amount of $12,500 for contractors.

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Connecticut Surety Bond Guarantee Program

SB 736 would establish a surety bond guarantee program to help small and minority contractors with bonding.

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Pennsylvania Surety Bond Guarantee Program

HB 83 reintroduces a state bond guarantee program bill that died for lack of funding last year. HB 83 would create the Surety Bond Guarantee Fund Program. The program would serve to enable disadvantaged businesses to bid competitively for certain Commonwealth contracts. The Surety Bond Guarantee Fund (Fund) would provide guarantees up to $1 million for any one small or disadvantaged business enterprise. To qualify for a guarantee, the bond would have to meet the following criteria: 1) the bond must be listed in the contract bonds section of “The Surety Association of America’s Manual Of Rules, Procedures and Classifications”; 2) the bond is required by the contract, invitation for bid or request for proposal; 3) the surety company issuing the bond must be listed on the U.S. Treasury Department’s Circular 570 as an acceptable company; and 4) the bond must meet any other requirements established in regulations. The bill also contains a provision that the bond must contain a provision allowing the bond to be cancelled with 30-days notice to the Department, or the bond will not qualify for a guarantee.

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US Government Hearing On Minority Contracting Issues

Last month, the Government Management, Organization and Procurement Subcommittee of the U.S. House Committee on Oversight and Government Reform held a hearing on minority contracting issues. The Subcommittee discussed existing federal programs for minority-owned business enterprises (MBE) and disadvantaged business enterprises (DBE), as well as the challenges that these businesses have faced. The testimony featured one panel including the Small Business Administration (SBA) and the Minority Business Development Agency of the Department of Commerce (MBDA), and representatives of minority and small business development divisions within the Departments of Transportation (DOT) and Defense (DOD) and the General Services Administration (GSA), and another panel of minority contractors.

The testimony of the federal agencies focused on what the agencies had done to help MBEs and DBEs and the continuing challenges the contractors face. Largely, the government witnesses focused on a lack of access to capital. David Hinson, National Director of the MBDA, which is an agency of the Commerce Department, noted that it is working on a surety bonding initiative with a goal of identifying $100 million in private capital through a public-private partnership and to grow to $1 billion over time.

The panel of minority contractors and legal experts included representatives from the Minority Business Enterprise Legal Defense Fund, Mid-Tier Advocacy, the Airport Minority Advisory Council (AMAC), the Associated General Contractors of America (AGC) and the Thelton E. Henderson Center for Social Justice at Berkeley Law. Most of these panelists stated that discrimination generally existed in all aspects of contracting, including contract formation, awards of contacts, bonding, insurance and credit.

Other key issues addressed during the panel of minority contractors were contract unbundling, multi-tier subcontractors counting toward small business participation goals, small business size standards and prompt pay requirements. In written testimony, the Minority Business Enterprise Legal Defense Fund noted that minority-owned construction firms were not able to meet bonding requirements, which constrained their participation in federal contracting opportunities. The written testimony stated that insurance brokers lack incentive to serve the minority construction firms, whose contracting opportunities are generally smaller in size.

Surety Bond Associates provides specialty surety bond services to small, minority and women owned contractors designed to eliminate the barriers that prevent them from accessing the financial resources necessary to actively compete.

Contact Us to learn more about our Surety Support Services

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