Be Careful in your Bond Agreements
Below is a good article on a bid bond and how your bonds can be called into question by related deals. Specifically, it is all about a side agreement that allows for the pooling of resources. This arrangement is not a bad one, but one of the keys is that the bonded contractor was going to allow the other contractor to utilize their bond in order to perform the work. That's not necessarily wrong, but you do need to be sure that it doesn't violate the underlying job documents.
Main Street Project Halted Due to ‘Invalid’ Subcontractor Agreement
“I have managed to obtain a copy of the correspondence suspending the funding, and must say that I was deeply disturbed by what I read,” Sen. Jean Forde said in a statement Monday. “As such, I have written to Commissioner James in an attempt to get a complete picture of what has happened, why it happened, and what we can expect for the future regarding the Downtown Revitalization Project. In an economic and political atmosphere in which the Virgin Islands needs and will have to fight for every federal dollar we get, we simply cannot afford to leave monies on the table.”
According to the letter from Federal Highway Administration official Michael Avery, funding for the project was suspended because of an unapproved partnership between contractor Tip Top Construction and subcontractor Prestige Building company, which he said was not prevously disclosed during the bid award process.
While the Source has not been able to reach Public Works or Tip Top representatives for comment, it has, like Forde, also obtained a copy of the letter from Avery, which was sent late last week to both Public Works and Property and Procurement commissioners. According to the letter, FHWA said the contract executed for the project required a payment and performance bond from contractor Tip Top, which was able to satisfy the requirement through a “teaming agreement” with Prestige, executed last September.
“Such a contingency is not acceptable since it was not disclosed during the Payment and Performance bond evaluation process, the teaming agreement was not submitted with the bid package and was not approved by VIPW (V.I. Public Works) during the award process,” according to the letter from Federal Highway’s Michael Avery. “In addition, Prestige is not a signatory nor an approved subcontractor for this contract.”
Avery said that since the payment and performance bond appears to be invalid, Tip Top could be in breach of contract, which would consequently put the company in default.
“Therefore, FHWA will suspend federal eligibility of this contract from the date of this letter until the matter is resolved,” Avery wrote.
According to the contract documents, Tip Top and Prestige’s agreement allowed the companies to pool their resources for the project, which includes the construction of a “new historic streetscape with underground utilities, concrete pavement, cobble paver and landscaping, and all related management.” The performance bond guaranty was signed on Sept. 15, 2015, by both company presidents.
The document also provides that Prestige, as the subcontractor, shall provide surety for the project along with “full financial control of the contract proceeds through a mutually agreed escrow account controlled by subcontractor.”
Contract documents also include copies of the $8.4 million performance bond, which names Tip Top Construction as the principal.
In his statement Monday, Forde said he was particularly concerned about the impact on workers who could be laid off or terminated because of the stoppage and suspension of federal funding.
“The monies that will not be released to the territory over the coming weeks or months would otherwise employ workers who need to provide for their families, particularly with the holiday season upon us,” Forde said in his statement. “As such, I call upon the Department of Public Works to take all possible steps to resolve this matter as soon as possible so that our people can get back to work, and so we can continue the process of revitalizing the Charlotte Amalie downtown area.”