The Pennsylvania Insurance Department recently petitioned the Commonwealth Court to liquidate the now defunct company. The petition was approved, and now the company’s assets will be used to pay outstanding claims.

Total liquidation of a surety company is a rare occurrence, but the First Sealord story provides a good reminder for contractors that thoroughly researching your financial partners is more important than ever to protect your business.

If you have any concerns, give us a call!

Please click play in the video clip below to watch Mr. McCallum’s opening remarks:

Click here to view the video on YouTube.

A recent article published in the Chatham, Ontario Daily News illustrates the point perfectly. Dirk Koomans and Sons Ltd., a local area contractor, fully expected to receive the most recent city contract to demolish a local auditorium. It came as a shock when, after 50 years of service to the Chatham area, they were not selected for the project.

City officials awarded the contract to a non-local firm in part because they were able to meet specific, time-sensitive bonding criteria. It’s a good lesson for “favorite” contractors who have come to rely on city contracts simply because they’ve been chosen in the past. Now is a great time to update your bond file at Surety Support Services, Inc. with current financial information. By providing some basic information, you can help us maintain your surety program, avoid last minute paperwork scrambles, and remain competitive when bidding on new projects.

The new law enforces payment to contractors and subcontractors for labor and materials used in construction projects – and it’s a big win for subs. Too often, they are unable to collect payment for services rendered because funds have been inappropriately handled (whether intentionally or unintentionally).

The fact that officers and directors can be both personally sued in civil court AND prosecuted by the state makes it much more likely that subcontractors will be better protected in the future, but it should not prevent or dissuade subcontractors from securing a lien on any project property – they should certainly not rely solely on the statute for protection.

For more information, please download the original article from Lexology.com

The six new laws provide protection to subcontractors by allowing them more time to file lien claims, streamline filing processes, ban broad-form indemnification clauses, and more. There is still room for improvement, but laws like these vastly improve the outlook for subcontractors.

Read the original article from ENR Texas & Louisiana

However, the construction industry tends to involve considerable risk … especially when it comes to hiring subcontractors. Although there are many benefits, there are also many concerns surrounding third-party laborers. If, for example, a subcontractor fails to successfully complete tasks necessary to complete a project, it can cause significant delays (not to mention expense) for the job, the primary contractor, and the client. A general contractor should work to avoid this scenario at all costs, but of course, that’s sometimes easier said than done.

To assess the qualifications of any given employee, regardless of industry, can be a difficult task, but in construction, a poor choice of subcontractors can create huge liability. General contractors don’t always have the time or resources to thoroughly research a sub’s background, or more importantly, the ability to monitor a subcontractor’s backlog. If a subcontractor happens to encounter a problem project, it is likely that it will impact progress on all of their work.

Contract surety bonds are the best option to help mitigate some of the risk associated with hiring subs. With the appropriate bond(s) in place, the risk of losses generated by a subcontractor default can be passed on to the surety company, saving the general contractor from cash flow, and project profit disasters, but also from the enormous amount of time and expense involved to investigate and resolve the default.

Benefits of Bonding Subcontractors

Transferring the risk of subcontractor default to the surety company is not the only benefit of surety bonds, however. When subcontractor performance and payment bonds are required:

• • General contractors have reassurance that they’ve hired qualified subcontractors because the bonded subs will have successfully passed a thorough evaluation and qualification process by the surety company. The pre-qualification and approval processes improve the overall quality of subcontractor bids, and eliminates problems that may occur with lesser quality or unqualified subcontractors.
• • The contractor is protected from paying twice for the same work if the subcontractor fails to pay their subs and/or suppliers.
• • Prime contractors with established subcontractor bonding programs are generally viewed favorably by their own surety company.

Common Construction Bonds

The two most common surety bonds in the construction industry include Payment Bonds and Performance Bonds:

• • Performance bonds help assure the subcontractor is qualified to perform the work, and protect the prime contractor (obligee) from ultimate financial risk should the subcontractor (principal) default or fail to perform the job according to the terms and conditions of the contract.
• • Payment bonds assure that specified laborers and suppliers associated with the project will be paid.

The Cost of Bonds

Bond rates will vary depending on the type of construction requiring the bond, and the financial strength of the subcontractor. Surety bonds can cost from one-half of one percent to three percent of the total contract amount depending on the project specifics.

At Surety Support Services, Inc., bid, performance, and payment bonds are our specialty! We’ve provided surety programs for contractors across the United States for over 30 years, with an emphasis on small emerging firms and specialty trades. We have the talent and expertise to establish an appropriate surety program to meet the unique needs of your business, and offer proven solutions to compliment your growth goals. Please contact us today to get started on a bonding program that best suits your business: 866-385-7760

A recent case in Bloomington, IL illustrates the point perfectly — when Di Paolo Construction Company failed to meet the city’s requirements and deadlines, they lost their $450,000 cashier’s check to the city! The contractor had to forfeit his check because he was unable to obtain a required performance bond.

To clarify: Pay-when-paid, as the word when suggests, means subcontractors on a job will be paid when the general contractor, or the surety company bonding it, is paid by the project owner. Pay-if-paid, on the other hand, doesn’t offer nearly the same assurance. The language in these contract clauses can potentially shift the burden of payment to the subs, sometimes including a provision that the subcontractor assumes the risk of nonpayment by the owner because of insolvency or other inability to pay.

If you’re a subcontractor, and you think this can’t happen to you, think again. A recent article in Finance & Commerce magazine titled “Subcontractors Need to Scrutinize Contingency Clauses” sheds light on many of the challenges subs face when a project owner doesn’t (or can’t) pay. Did you know that the standard contracts provided by the Associated General Contractors of America trade group have a rider that turns contractor’s pay-when-paid clauses into pay-if-paid? We cannot emphasize enough how important it is to read the fine print!

When possible, review the surety bond that comes with the contract. They may in fact have different language that could impact payment and liability. Our team at Surety Support Services, Inc. is always available to answer questions you may have. Call us today for more information: 866-385-7760

Thankfully, there are measures every business can take to minimize the damage that can come from bad hiring decisions. Having employees bonded is one way to protect your business.  For example, if the new VP in the corner office ends up embezzling funds, or worse, stealing from clients, your company will not be responsible for paying damages as long as s/he is a bonded employee.

Fidelity Bonds

Fidelity Bonds are special type of surety bond that are designed to protect employers from financial losses caused the actions of dishonest employees. These bonds will reimburse employers in the event of employee fraud, theft, forgery, and embezzlement of company’s cash and other assets.

Any business that allows employee access to sensitive customer information or company accounts, equipment, or other assets, should have fidelity bonds in place. Fidelity bonds offer the best protection for business losses caused by dishonest employees.

Business Disruptions/Failures

We see business disruptions or failures far too frequently these days, and they aren’t always caused by a new hire … in fact, it’s often the faithful bookkeeper (in some cases, a relative), usually a trusted employee that’s been with the company for many years, that began diverting the company’s capital to fake accounts, false suppliers, not paying tax withholding payments, etc. The truly sad part is that these situations could so easily be corrected. An inexpensive fidelity product is a very wise business decision to protect your company from financial loss.

We have options available for businesses of all types – everything from janitorial services to pension trust fund managers. To learn more about fidelity bonds, please contact our office at 866-385-7760.