Blog – Info for Contractors!

What happens when you don’t count on a bid bond

Bid bonds – Not just a Nice to Have Below is a good article on what happens when you don’t consider the cost of a bond in your bid.  As you can see from the article, the contractor did not submit a bid bond for the contract, which would have led to a great piece of business.   Given the size of the contract, the contractor would likely have received a significant boost to his bottom line if he had priced it including the bond requirements. Two new entryway signs for Enid are on hold after a motion to award a construction contract was defeated during an Enid City Commission meeting last week. The city commission considered a $127,000 contract with Henson Construction Co., of Enid, on April 19. Plans have entailed constructing one sign on U.S. 412, east of 66th, and another to replace an existing sign on South U.S. 81, City Engineer Robert Hitt said. The contract included one bid alternate to construct a low wall at the base of each sign. Two other alternates — not recommended for inclusion in the contract — were a mow strip, or concrete curb, around the exterior of the signs, and a solar lighting system for the sign on U.S. 412. “We felt, at this time, the cost to provide the mow strip and to provide the solar panel is probably a little excessive,” Hitt said. There is a $130,000 budget for the two signs, he said. Ward 4 Commissioner Rodney Timm asked for an explanation about a $40,000 bidder. Hitt said Vital Signs of Oklahoma, of Edmond, submitted a bid without a bid bond and are considered non-responsive. It’s required that companies submit a 5 percent bid bond with a guarantee, if awarded, that the company will enter into the contract. “I would not recommend awarding a contract for a public improvement, as such, on a contractor that did not provide a bid bond,” he said. Engineering Director Chris Gdanski said the contractor was notified of the need for a bid bond. “He was somewhat concerned that we required a bid bond, a performance bond and a three-year maintenance bond, and, apparently, from what he told me, he hadn’t planned those into the cost estimate and he politely requested to withdraw his bid,” Gdanski said. Timm said it is “nice to see” something appraised for what it actually costs to make. “I think this is a very good place to start our budget. This is way too much money for a sign,” Timm said. Ward 1 Commissioner Ron Janzen said the cost is his concern as well. “I expressed this during the budget hearings that, to me, if we’re prioritizing projects, and in our last budget we took out a number of street and bridge projects that we’d postponed, and yet we’re going to spend $127,000 putting up two entrance signs? I can’t vote for that. To me, I think we need to establish priorities and try to get […]

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Construction Contracts

Contracts in Construction There are several big things in construction contracts that can get you into trouble if you do not know what to look for. Knowing what you are signing can be the difference between a very successful project and costly litigation — or worse. Because your bond company is guaranteeing the performance of your contract, they will also be very interested in the terms that you commit your company to. Watch out for these five contract clauses that can hurt your balance sheet. Consequential Damages Contractors should be very concerned with Consequential Damages clauses. These clauses make it difficult to evaluate your risk. Consequential damages are usually much larger than the contract itself, leaving your company with an inappropriate level of risk. Instead, the contractor should insist on a mutual waiver of consequential damages clause for any delay. It’s important to note that if the contract is silent on damages, consequential damages could still be assessed. A better alternative is a liquidated damages clause for delay because it allows you to calculate and fairly asses your risk. Warranties The construction market changes quickly. Ask any contractor who survived the last recession. Guaranteeing a project for the long term is not something you or your bond company should want to do. Bond companies routinely see warranties of 2 years or less but will carefully scrutinize any warranty longer than 3 years. Additionally, long term guarantees on equipment or materials should be passed back to the supplier and not guaranteed by the bond. Contract Termination Without Cause If you are like most companies, a premature shutdown of your project will be costly. Not only will it cost you time, resources, profit and bond capacity that you committed to this job, but it will cost you time and resources to find work to replace the project. A much better solution would be to negotiate termination for specific causes (i.e. performance). Payment Clauses One word can be the difference between success and financial disaster. There have been no shortage of contractors burned by “pay if paid” language in contracts. The alternative is the “pay when paid”. Courts assume that “pay when paid” is a timing mechanism and the contractor will eventually be paid. This is not the case in “pay if paid” when the contractor assumes the ultimate risk of non-payment by the owner. Many states have made these provisions unenforceable as they are against public policy. Unfortunately Missouri and Kansas are not included in those states. These clauses are enforceable when written correctly. Contractors should always ask for evidence of owner financing and ask that any “pay if paid” clause be changed. Flow-Down Clauses Flow down clauses are common in construction contracts and applies mostly to subcontractors. The purpose is to bind subcontractors to the same terms and responsibilities that the general contractor has with the owners. In reality, this makes a lot of sense and should be expected. However, we are seeing some troubling trends in the industry. First, we […]

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Ironshore Surety purchases remainder of Lexon Surety

Below is an article that discusses the remainder of the purchase of Lexon Surety by Ironshore surety.  This finalizes the sale of Lexon, which is a large surety bond provider, especially for companies with lower credit ratings – and one that we’ve used often for our clients. See the article below for more or our bid bond page here. See our facebook page.  Visit our twitter page also. Bermuda-based specialty insurer Ironshore Inc. said it will acquire the remaining 80 percent equity interest in Lexon Surety Group and its surety-related affiliates. Ironshore said it will be an all-cash transaction. Lexon Surety Group is a privately-held insurance holding company specializing in surety bonds. Lexon Surety Group, based in Nashville, Tennessee, is comprised of Lexon Insurance Co. and Bond Safeguard Insurance Co. Lexon underwrites more than $135 million in direct written premium annually in 49 states, Washington, D.C. and U.S. properties located overseas. Ironshore became a 20 percent owner of Lexon in 2014 following its initial investment in 2013. Ironshore subsidiaries also provide quota share reinsurance and a primary fronting facility on new and renewal business for U.S. commercial and contract surety risks. Kevin H. Kelley, chief executive officer of Ironshore, said this acquisition reflects close collaboration between Ironshore and Fosun International Limited as they continue to broaden Ironshore’s business. Fosun International Ltd. completed its acquisition of the remaining 80 percent equity interest in Ironshore last November after acquiring 20 percent last February. Ironshore is now an indirect wholly owned subsidiary of Fosun International Limited. “Ironshore’s acquisition of Lexon is a culmination of our plan to enter the surety market through an established company with a strong customer franchise, diverse product mix and capable management team,” said Paul S. Giordano, chairman, Ironshore Political Risk, Special Risk and Surety. Lexon Surety business includes contract surety bonds, commercial surety bonds, court surety and probate surety bonds, as well as U.S. Customs surety bonds. Last month, Bloomberg reported that Fosun was weighing a possible initial public offering for Ironshore Inc. or the sale of the insurer. Currently, Fosun’s insurance business includes investments in Yong’an P&C Insurance, Pramerica Fosun Life Insurance, Peak Reinsurance, Fidelidade Group, Ironshore and Meadowbrook Insurance Group.

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St. Louis – WBE bond program

Below is a great article on the city of St. Louis, Missouri passing a bill to help out minority and women based enterprises.  These businesses many times struggle getting bonded, so they typically miss out on many governmental projects.  The city of St. Louis is trying to alleviate that problem.  Kudos to them. See the article below for more or our bid bond page here. See our facebook page.  Visit our twitter page also. The City of St. Louis has brokered a new Gateway Surety Bond Program designed to help minority- and women-owned construction companies obtain surety bonds that normally do not qualify based on standard underwriting guidelines. Howard Hayes, director of Minority Business Development & Compliance for the St. Louis Development Corporation, developed the program with Community Insurance Center, a division of Inner-City Underwriting Agency. “Surety bonds are required for all public financed projects. Most minority and women owned construction firms can’t bid on these projects because they don’t qualify for surety bonding,” Hayes said. “This inability to access financing and bonding is consistently identified by minority and women owned construction firms as the major barriers preventing growth and development. St. Louis intends to change this.” The new bond program will work closely with the new Contractor Loan Fund created by St. Louis Development Corporation along with its regional partners last year. Together, the programs expect to increase the number of minority- and women-owned construction companies that can qualify for both bank financing and surety bonds. Community Insurance Center has implemented similar programs in Illinois for the City of Chicago, Illinois Tollway and several other public and private organizations. It has opened an office in St. Louis and moved the firm’s Surety Practice leader, Gina Eanes-Banks, to manage the new office and implement the new bond program. More information about the program will be released shortly. In the meantime, contractors interested in applying to the program should email Matthew Cooper at [email protected] or call 314-551-9080.

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