Appraisal and Title Report

Explanation of appraisal and title report non refundable fee paid direct to surety.

Some companies accept collateral as security for the risk to the surety. With collateral held as security for the bond, the surety company is in good standing to obtain funds in the event of loss. When the surety company takes real estate as collateral, the first step in accepting the offered real estate is to obtain a title report and perform an appraisal in order for the surety to determine ownership, value of the asset, and make sure that there are no additional liens on the property. In most cases the surety company will only accept an appraisal from their own appraiser and will obtain a title report from their own title company.

The surety company would prefer first position on the property being offered as collateral. In most instances these properties have an existing first trust deed attached to them. The only other position that surety will take is second position after a first deed of trust. The time it takes to get the appraisal is the limiting factor. If you have had a recent appraisal done they may consider that. The surety has a formula that is based on the worst-case scenario when they evaluate the property such as foreclosure, readying property for sale, time on market to sell, and selling costs. The surety takes the appraised value and reduces the value by their formula. At the date of this writing the market has flattened out and started to decline along with interest rates rising. The upward trend in the interest rate is precipitated by the Federal Reserve cost of funds and values are starting to decrease. In a downward cycle, the surety will not be as willing to take real estate as collateral. The new upward or downward cycle will be factored into their evaluation to make sure that they are getting the requisite value to cover the bonds that they are being asked to issue.

 

Bond Pro Final Contract or Bid Worksheet

The Final Contract or Bid Worksheet form is a combination of all the items that come from the actual bid or final contract which includes, but is not limited to, the following:

1. Description or scope of work
2. Location of actual job
3. Obligee just as it is to appear on the bond
4. The amount of bid or final bond
5. Time to complete the project
6. Penalties for non completion usually a per day figure or not at all
7. A number of other job specific and general questions

Business Financial Statement

Some License, Permit, and smaller bonds require a Business Financial Statement.

This statement is usually internally generated by the applicant. The two most common computer programs that small businesses use to generate business states are Quicken® and Quickbooks®. The two most important parts of a financial statement (the ones that the underwriter wants to see) are the Income and Expense Statement and the Balance Sheet. The income and expense statement shows all income for a specified period of time, along with the general and administrative expenses. The balance sheet shows the Assets and Liabilities along with the value of the company. The underwriter uses various formulas to evaluate your company to see if the cash flow and profits are sufficient to support all your projected jobs, not just the proposed bonded jobs.

Financial statements are usually required for the prior year end. This will show a complete year of business and tell the surety company underwriter how well your company performed. The underwriter will ask for a financial statement from the beginning of the to date (called Interim) for the present year. The surety wants the most recent months that you can provide on the financial statement, so they can see how your company is performing to date.

Some businesses do have peak seasons and other special financial circumstances that are only shown when the whole year is complete. Therefore the prior year should show this type of activity. If you have any special circumstances that affected the financial condition for your company, you should include a letter of explanation. If you have omitted because you are waiting for that information, you should specify that in a letter of explanation.

When a CPA prepares your business financial statement, he should be made aware of special circumstances that affect the financial condition of the company. He will write a letter of explanation that covers each of the items that need to be explained.

If you own a lot of assets, list of those assets such as stocks, bonds, CDs and or equipment, especially if these are large items on your financial statement. You may want to include the most recent statements from the financial institutions where assets are located. These statements should show the value of your company at the time of the statement. They are much like a bank statement.

If you own real estate, include a spreadsheet that shows the type of property (such as SFR for single family residence, office building, apartment etc), purchase price, date purchased, percentage owned, amount of all mortgages, amount of the mortgage payments, names, addresses, and phone numbers of lenders, present value of the property, income of the property and annual taxes. This gives a fairly complete picture of income stream and hard costs of the properties.

Checklist

1. Most recent year complete financial statements
2. Interim statement for the present year
3. They should include Income and Expense along with Balance sheet.
4. Letter of explanation if needed.
5. Attach any spreadsheets of real-estate or assets.
6. Any additional information or statements.

It is important to provide complete and accurate information regarding your company to facilitate the bond process.

CPA Financial Statement Differences

There are a number of financial statements that a CPA may prepare for you, the three generally accepted headings are the following Compiled, Reviewed, and Audited Statements.

The Compiled Statement, which is the least expensive, is based on just the information that you give. The CPA does no investigation of the information whatsoever. This CPA prepared statement will have a disclaimer at the beginning of the financial statement that indicates that he did not investigate the information and is not responsible for its content.

A Reviewed Statement is more costly and has a disclaimer that says that they have investigated most of the information and found it to be reliable. This means that they may call banks, suppliers, verify lines of credit and use various other means necessary to verify your information. If there are any questionable items, those items will be mentioned in the disclaimer from the CPA. This statement may have some appendixes that list various assets liabilities along with explanation of methods used to determine value or verify information. This is of course more time consuming and is looked on as more reliable information for a surety underwriter to base a decision on. Most bonds over $500,000.00 require reviewed CPA prepared statements. We also have sureties that require a reviewed statement for $200,000.00 and above bond request. Each surety and or situation will determine what the underwriters comfort level is for a financial statement.

The last financial statement is the Audited Statement, and it means just that, Audited. The CPA does everything that they do in a Reviewed Statement along with physically verifying all assets and liabilities. This means they will visit the assets to physically see them for themselves. To include but not limited to real-estate, equipment, contracts, and bank accounts. Along with making a determination of whom actually owns the assets. Call all your banks and lenders. Call all your suppliers. Determine if the actual value represented is actually there through various different accepted auditing methods. Needless to say this is much more time consuming and costly.

A Reviewed Statement is usually acceptable unless the bond requirements are larger or unusual or the situation warrants the Audited Statement. Contractor’s financial statements should be based on the cost to complete method. Not the mercantile, cash or cost of good methods. If you do not have your CPA use the cost to complete method you may have wasted your money for the statement. Meaning you may have to pay for a second one to proceed. If you are a contractor you need to be very specific with your CPA about using the cost to complete method. Further you need to ask the CPA if they have and will use that method for the Financial Statement. Some will not. Therefore you may need to find a CPA that understands what the surety is requesting and the contracting business.

Note, this is discussion is for a contracting risk, if it is another type contract for a risk other than contracting then you need to call our office prior to having your CPA prepare the statement.

Personal Financial Statement

The Personal Financial Statement form is used for the personal financial statement of the principal for their own account or as officer of a corporation. It is for your use in the event you do not have an existing statement prepared. If you have your financial information on your computer and can produce a statement with a program such as Quicken® or QuickBooks®, that is fine. We can supply the form if you do not have that option. If you have a personal financial statement prepared by a CPA, please supply that statement.

The personal financial statement gives the surety a view of all your assets and liabilities at the time of the application for the bond. Financial information can change dramatically in a short time, so the statement must be timely. If your present personal financial statement is over two or three months old, you will need to create a new one. For those who have numerous properties, some wholly owned and/or some in partnerships, we will need a spreadsheet that shows the purchase price, date of purchase, current value, loans, income and your ownership percentage.

In some instances the surety may need to know of any additional expenses or unusual circumstances that pertain to a property that would affect the value and income of the property. Stocks may be verified by supplying a statement of the account from a broker. If you have a line of credit at the bank, please supply a statement from the bank showing the actual line of credit limit, along with the used and unused portion. A bank statement showing a substantial amount of liquid assets in the form of cash or CDs may also be required. Your goal should be to present as strong a statement as possible.

The surety company may accept a short form Business Financial Statement for smaller bonds. We provide a business financial statement form that shows most of the information that is on a personal financial statement. Please fill out the form as completely and legibly as possible. Please include an explanation letter if needed. Do not leave blanks. If the information requested does not apply, indicate that it is not applicable (N/A). Please print your answers with blue or black ink. Forms differ for each surety company. Your goal should be to present as strong a statement as possible.

Short Form Business Financial Statement

Checklist

1. Completed Business Financial Form
2. Letter of explanation if needed.
3. Attach any spreadsheets of real-estate or assets.
4. Any additional information or statements.

Collateral Agreement

Collateral security agreements contain the amount and form of the collateral. This agreement describes the events and procedures that must take place for your collateral to be released to you. In the case of real estate, the trust deeds are removed by filing a deed of reconveyance. This is a fairly long process. You should not put up real estate as collateral if you need to sell or refinance the property during the bonding time frame. The surety might not want to release the collateral especially if you are in the middle of a job or a loss has occurred.

In the event of a hardship, the surety company might considered a substitution of collateral. If the substitution is acceptable to the surety, the surety will provide a new collateral security agreement. When the obligee has signed off on the contract and the job via written documentation, you may ask for your collateral to be released. It the surety has taken cash as collateral, it is a much faster process than the return of real estate.

The surety company will not release the collateral if the obligee has not issued an exoneration and release of contract showing that the work has been performed as per the contract, that there are no defects and that the obligee has completely paid the principal all the funds due. Even though the obligee has done all of those things, the surety will wait for a reasonable period of time for any third-parties to bring notification of breach or non-payment of labor and/or suppliers. When the surety company is certain that there is no reasonable possibility of claim against the bond it will release the collateral.

Employee Retirement Income Security Act

From Wikipedia, the free encyclopedia.

The Employee Retirement Income Security Act of 1974 (Public Law No. 93-406, 88 Stat. 829, Sept. 2, 1974), commonly known as ERISA, is a United States federal statute enacted to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

While ERISA was passed by the U.S. Congress, the interpretation and enforcement of ERISA is handled by the U.S. Department of Labor and the Internal Revenue Service. Originally passed in 1974 (amended as of 1/1/2001) to deal with widespread concerns about the fairness and economic soundness of employee benefit plans, the most controversial provision of ERISA is the preemption of many state laws relating to insurance.

In general, ERISA does not apply to benefit plans established or maintained by governmental entities, plans established by churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws. ERISA also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans.

ERISA requires pension plans to provide for vesting of employees' pension rights after a specified minimum number of years and to meet certain funding requirements. It also establishes an entity, the Pension Benefit Guaranty Corporation (PBGC), that will provide some minimal benefits coverage in the event that a plan does not, on termination, have sufficient assets to provide all the benefits employees and retirees have earned. Later amendments to the Act require employers who are withdrawing from participation in a multiemployer pension plan that has insufficient assets to pay all of employees' vested benefits to pay their pro rata share of that unfunded vested benefits liability.

ERISA does not, on the other hand, require employers to establish pension plans; instead it only applies to those plans that an employer has established. ERISA likewise does not, as a general rule, require employers that have established pension plans to provide any minimum level of benefits; instead it regulates the manner in which an employee can obtain vested rights to a pension and the manner in which pension benefits can be reduced because of events such as early retirement or return to work in the industry after retirement. ERISA does, on the other hand, require employers to provide some forms of benefits, such as joint and survivor annuities that allow married couples who have opted for such coverage to provide for continuing benefits to a surviving spouse, that plans might not have offered previously.

ERISA likewise does not require employers to provide any health insurance, but regulates the manner in which such health benefits plans operate. There have been a number of amendments to ERISA expanding the protections available to health benefit plan participants and beneficiaries. One important amendment, the Consolidated Omnibus Budget Reconciliation Act of 1985, better known as COBRA, provides some workers and their families with the right to continue their health coverage for a limited time after certain events, such as the loss of a job. Another amendment to ERISA is the Health Insurance Portability and Accountability Act, or HIPAA, which allows employees to obtain continued coverage for preexisting medical conditions in some circumstances when they move from one plan to another, prohibits some forms of discrimination in health coverage based on factors that relate to an individual's health, and requires stringent privacy protections for certain types of health information. Other important amendments include the Newborns' and Mothers' Health Protection Act, the Mental Health Parity Act, and the Women's Health and Cancer Rights Act.

Many employers that promised "lifetime" health benefits coverage to retirees have attempted to avoid those promises in recent years. ERISA does not provide for vesting of the right to future health care benefits coverage in the way that employees can obtain vested rights to future pension benefits. Employees and retirees who have been promised "lifetime" health benefits coverage may, on the other hand, be able to enforce such promises by suing the employer for breach of contract or by challenging the health benefits plan's right to change its plan documents to eliminate such benefits.

ERISA also requires plans to provide participants with information about plan features and funding and their own right to benefits. It requires those who manage and control plan assets to act as fiduciaries. It requires plans to establish a grievance and appeals process for participants to get benefits from their plans and gives participants the right to sue for benefits and, with a number of judicially-created limitations, to seek relief for breaches of fiduciary duty. Participants and beneficiaries are, in many cases, required to exhaust a plan's internal appeals procedure before suing the plan for benefits.

ERISA preempts all state tort and consumer protection laws. An enrollee may sue an employee benefit plan, or a health maintenance organization (HMO) with which it contracts, only for benefits denied or for reimbursement for plan benefits. No other monetary damages may be awarded. See Aetna v. Davila, 542 U.S. 200 (2004) [1]

A number of bills have been introduced in Congress that would limit the circumstances in which ERISA prevents employees and dependents covered by an ERISA group health plan from suing health maintenance organizations over health care decisions made by the HMO. Those efforts have, to date, failed to make any significant changes in this area.

Portions of ERISA are codified in various places including Chapter 18 of Title 29 of the United States Code and Internal Revenue Code sections 219 and 408 (relating to the Individual Retirement Account and sections 410 through 415, and 4971, 4974 and 4975.

What is ERISA?

The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.

ERISA is a federal law that sets minimum standards for retirement plans in private industry. For example, if your employer maintains a retirement plan, ERISA specifies when you must be allowed to become a participant, how long you have to work before you have a non-forfeitable interest in your benefit, how long you can be away from your job before it might affect your benefit, and whether your spouse has a right to part of your benefit in the event of your death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.

ERISA does not require any employer to establish a retirement plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.
ERISA does the following:

• Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.
• Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a non-forfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
• Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.
• Gives participants the right to sue for benefits and breaches of fiduciary duty.
• Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

What is a Defined Benefit Plan?

A defined benefit plan, funded by the employer, promises you a specific monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more often, it may calculate your benefit through a formula that includes factors such as your salary, your age, and the number of years you worked at the company. For example, your pension benefit might be equal to 1 percent of your average salary for the last 5 years of employment times your total years of service.

What is a Defined Contribution Plan?

A defined contribution plan, on the other hand, does not promise you a specific benefit amount at retirement. Instead, you and/or your employer contribute money to your individual account in the plan. In many cases, you are responsible for choosing how these contributions are invested, and deciding how much to contribute from your paycheck through pretax deductions. Your employer may add to your account, in some cases by matching a certain percentage of your contributions. The value of your account depends on how much is contributed and how well the investments perform. At retirement, you receive the balance in your account, reflecting the contributions, investment gains or losses, and any fees charged against your account. The 401(k) plan is a popular type of defined contribution plan. There are four types of 401(k) plans: traditional 401(k), safe harbor 401(k), SIMPLE 401(k), and automatic enrollment 401(k) plans. The SIMPLE IRA plan, SEP, employee stock ownership plan (ESOP), and profit sharing plan are other examples of defined contribution plans.

• Employee Benefits Security Administration
• Retirement Savings Education Campaign - Saving Matter
  

Fiduciary

From Wikipedia, the free encyclopedia.

In many common law jurisdictions, fiduciary is a legal term used to describe a relationship between a person who occupies a particular position of trust, power or responsibility with respect to the rights, property or interests of another. Common relationships with this character are those of a guardian and a ward, an attorney and a client, and a trustee and a beneficiary.

In general, a fiduciary must act for the benefit of the person to whom he or she owes fiduciary duties, to the exclusion of any contrary interest. In business or law, a fiduciary relationship generally arises as a result of the specific duties that attend a particular profession or role (for example, an investment adviser, trustee or lawyer), or by virtue of a particular business relationship (for example, partners in a partnership). A fiduciary relationship can have a dramatic difference in power, knowledge or expertise between the two parties, especially where the fiduciary is hired with the expectation that he or she will exercise independent professional judgment on behalf of another. A fiduciary will often be entrusted with broad power over the property of another.

Different jurisdictions may define the duties of a fiduciary differently, and may also adopt different views as to when a fiduciary relationship arises, and the scope of that relationship. Because of the degree of trust reposed in a fiduciary, a fiduciary is generally held to a very high standard of honesty and integrity within the scope of the relationship. Among the legal duties commonly imposed on fiduciaries are duties of good faith and candor (a duty to voluntarily disclose all material information). For example, a fiduciary may not personally profit from a business opportunity the fiduciary should have disclosed. A breach of these duties can give rise to a lawsuit in which the fiduciary can be required to account for improperly-gained profits and disgorge them.

Creation and Scope of the Fiduciary Relationship

A fiduciary relationship does not arise simply because someone places their trust in another person, nor does it extend to every possible sphere of action. One court has noted that "[m]ere respect for the judgment of another or trust in his character is not enough to constitute such a relationship. There must be such circumstances as indicate a just foundation for a belief that in giving advice or presenting arguments one is acting not in his own behalf, but in the interests of another party." (Cranwell v. Oglesby, 12 N.E. 2d 81, 299 Mass. 148, 1937). Certain relationships (noted above) have historically been regarded as fiduciary at common law, and others have been created by statute.

Specific Duties of a Fiduciary

Benjamin Cardozo, while sitting on the Court of Appeals of New York offered an influential description of fiduciary duties in Meinhard v. Salmon, 249 N.Y. 458, 464 (1928), which has been widely used in the United States:

Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.

Different jurisdictions define fiduciary duties differently, but four duties are very common:

1. Duty of Loyalty, i.e. a fiduciary must disregard his own self-interest and act for the benefit of the beneficiary;
2. Duty to Act Prudently, i.e. the Prudent Man Rule;
3. Duty of Care, i.e. a fiduciary must exercise the highest standard of care in managing the beneficiary's interests; and
4. Duty of Candor or Disclosure, i.e. a fiduciary must disclose all information material to the relationship to the beneficiary.

Fiduciary law is particularly relevant to the law of trusts, partnerships, agency, and corporate officers and directors (corporate governance). Fiduciary duties are always particular to the context in which they arise, and can often be created, modified, or even waived by private agreement.

Corporate Officers as Fiduciaries

The nature of fiduciary duties is especially relevant in the field of corporate governance. Members of the board of directors or the officers of a corporation may owe fiduciary duties to its shareholders, as defined by the law of the state of incorporation. However, the business judgment rule may limit the ability of shareholders to sue for breaches of fiduciary duty.

Professionals as Fiduciaries

Members of various professions such as physicians, architects and lawyers, have highly specialized training and possess credentials and expertise in a particular field. In many cases (including these) they may have a license to practice a profession from which laypersons are barred. These professionals are often placed in positions of trust with respect to those who avail themselves of their services, and are often deemed to owe fiduciary duties to their clients within the scope of their engagement. Most professions are subject to specific codes of conduct prescribed by law or independent credentialing authorities such as bar associations, and may be subject to additional penalties (such as a lawyer being disbarred).

Form 5500 Filing

What information is your pension plan required to disclose?

The Employee Retirement Income Security Act (ERISA) requires plan administrators to provide in writing the most important facts about the pension plan. Some facts must be provided to you regularly and automatically by the plan administrator. Others facts are available upon request, free of charge, but you may be required to pay for copying fees. Your request should be made in writing.

A summary of the plan description or SPD is one of the most important documents you are entitled to receive automatically when you become a participant of an ERISA-covered pension plan or a beneficiary receiving benefits under such a plan. The SPD is an important document that states what the plan provides and how it operates. It states the starting date of your participation in the plan, how your service and benefits are calculated, when your benefit becomes vested, when you will receive payment and in what form, and how to file a claim for benefits. Your plan administrator is legally obligated to provide to you, free of charge, the SPD. You should read your SPD to learn about the particular provisions that apply to you. If a plan is changed you must be informed, either through a revised SPD, or in a separate document, called a summary of material modifications, which also must be given to you free of charge.

Each year the plan administrator must automatically give you a copy of the plan's summary annual report, in addition to the SPD. This is a summary of the annual financial report that most pension plans must file with the Department of Labor. These reports are filed on government forms, Form 5500 or 5500-C/R. The summary annual report is available to you at no cost. To learn more about your plan's assets, you may ask the plan administrator for a copy of the annual report in its entirety.

If you are unable to get the SPD, the summary annual report, or the annual report from the plan administrator, you may be able to obtain a copy by writing to:

U.S. Department of Labor
EBSA Public Disclosure Room
200 Constitution Avenue, NW, Suite N-1513
Washington, DC 20210

A participant should include his/or her name, address, and telephone number to assist the Employee Benefits Security Administration (EBSA) in responding to their request. There may be a nominal copying charge.

If you have information that plan assets are being mismanaged or misused, send details to the nearest EBSA office.

General Guidelines

1, Please use blue or black ink to fill out the application or preferably fill it out directly on the interactive fillable Adobe PDF form using your computer. Surety requires that applications be readable.

2. Answer ALL questions. Do not leave any spaces blank. Either answer the question or put N/A in that field. Blank spots raise concerns with surety and will delay the underwriting.

3. Signing Application: You may be required to sign the application twice – once on behalf of your business capacity (such as Owner/ President/CEO), and once as a personal indemnitor. Spousal signature is required as California is a Community Law State.

4. When a Personal Financial Statement is required, you may forward a recent statement if you have one prepared on a computer program such as Quicken or QuickBooks, or if you have a recent form filled out that meets surety requirements. We provide a blank Personal Financial form if you need one. Click here to download the personal financial form.

(a) Owned real estate properties: For real estate properties where you are a full or part owner, you will need to indicate the percentage of your ownership amount. Please provide a simple description of the property, such as a single family home or commercial units, date purchased, purchase price, date built, current market value, monthly income, loan balance, monthly payment, and your percentage of ownership.

(b) Stocks and Bonds: Please provide the most recent statement from your brokerage house that has your account.

(c) Line of Credit: Please provide a copy of the most current statement from your bank, as surety will likely require it.

(d) Verify Cash: Please provide a copy of your most current bank statement.

5. Business Financial Statement: Your Quicken or QuickBooks internal statement will be accepted by surety for small bonds. Large bonds surety may require a CPA Financial Statement. Surety will also require verification of bank balances, stocks and bonds held by your business, and any lines of credit (which usually can be verified by most recent bank statements.).

6. License or Permit: The following is a list of examples of bonds: Contractors State License Board, State Board Equalization, Notary Bond, Insurance Broker Bond, Auto Dealer Bond, DMV Registration Service, Engine Verifier.

An Obligee requiring you to be bonded should provide you with the following:

(a) Letter instructing you to be bonded and the required bond amount. Surety will require a copy of this letter to proceed with underwriting.

(b) Copy of bond forms on which the obligee requires the bond to executed once it has been approved. Surety requires a copy of bond form as it instructs surety how the obligee wants surety to act on their behalf, as well as having your proper principal information. Make sure on your application where it states "Name” that the name is exactly as it appears on your license application. If the bond is not exactly as the obligee instructs and they reject the bond, it will delay your compliance with their requirements, as well as the issuance of your license. If the bond is incorrect due to inaccurate information on your application requiring us to revisit the file, you will be charged a processing fee for either reissuing your bond or issuing a Surety Change Rider.

Please email or fax your application to us. Upon receipt of your fully completed application, along with the letter of instructions from the obligee (as referred in item #6 above) and financials, if required, we will review and prepare your file and submit it to the underwriter for processing. Upon surety approval, we will notify you immediately. At that time you will need to provide the original signed (and notarized, if required) application, along with your check payable to BOND PROFESSIONAL. Per surety requirements, the bond cannot be released by our office until we have your original signed application and premium in hand.

7. Delivery of Bond: For special handling, please provide your DHL, or FedEx account number for overnight delivery of your bond. If you do not have an account with either of these overnight mail providers, we can provide overnight mailing for a fee of $30.00.

General Indemnity Agreement (GIA)

The indemnity agreement states that you will protect and defend the surety company from loss. You will pay for any losses or expenses incurred, and make the surety whole in the event of loss. This is a bond, not insurance. It means that in the event of loss you must do whatever is necessary to resolve the loss. If the surety has to pay for any or all expenses and fees, you are responsible for reimbursing the surety for same. The bond premium is designed with the assumption that there will be no loss. This is the reason for all the financial information, security and collateral. Please read the indemnity agreement and if you are signing a GIA, read the entire document and understand that it outlines the duties and responsibilities of the parties to the agreement.

Indemnity Agreement

When you sign an application for a license or permit bond the application contains the indemnity agreement. In some cases you sign as a principal and Indemnitor which means you are signing as an officer or owner of the company and then personally. The indemnity agreement states that you will protect and defend the surety company from loss. You will pay for any losses or expenses incurred, and make the surety whole in the event of loss. This is a bond, not insurance. It means that in the event of loss you must do whatever is necessary to resolve the loss. If surety has to pay for any or all expenses and fees, you are responsible for reimbursing the surety for same. The bond premium is designed with the assumption that there will be no loss. This is the reason for all the financial information, security, and collateral. Please read the indemnity agreement and if you are signing a General Indemnity Agreement, read the entire document and understand that it outlines the duties and responsibilities of the parties to the agreement.

The Miller Act

In the United States, the law requiring contract surety bonds on federal construction projects is known as the Miller Act (40 U.S.C. Section 3131 to 3134). This law requires a contractor on a federal project to post two bonds: a performance bond and a labor and material payment bond. A corporate surety company issuing these bonds must be listed as a qualified surety on the Treasury List, which the U.S. Department of the Treasury issues each year.

The Miller Act provides that, before a contract that exceeds $100,000 in amount for the construction, alteration, or repair of any building or public work of the United States is awarded to any person, that person shall furnish the federal government with the following:

1. Performance bond in an amount that the contracting officer regards as adequate for the protection of the federal government,
2. A separate payment bond for the protection of suppliers of labor and materials. The amount of the payment bond shall be equal to the total amount payable by the terms of the contract unless the contracting officer awarding the contract makes a written determination supported by specific findings that a payment bond in that amount is impractical, in which case the amount of the payment bond shall be set by the contracting officer. The amount of the payment bond shall not be less than the amount of the performance bond.

The Miller Act payment bond covers subcontractors and suppliers of material who have direct contracts with the prime contractor. These are called first-tier claimants. Subcontractors and material suppliers who have contracts with a subcontractor, but not those who have contracts with a supplier, are also covered and are called second-tier claimants. Anyone further down the contract chain is considered too remote and cannot assert a claim against a Miller Act payment bond posted by the contractor.

Many states in the U.S. have adapted the Miller Act for use at the state level. These state statutes may be referred to as, "Little Miller Acts."

Miller Act Statute TITLE 40. PUBLIC BUILDINGS, PROPERTY, AND WORKS

§ 3131. Bonds of contractors of public buildings or works

(a) Definition.--In this subchapter, the term "contractor" means a person awarded a contract described in subsection (b).
(b) Type of bonds required.--Before any contract of more than $100,000 is awarded for the construction, alteration, or repair of any public building or public work of the Federal Government, a person must furnish to the Government the following bonds, which become binding when the contract is awarded:
(1) Performance bond.--A performance bond with a surety satisfactory to the officer awarding the contract, and in an amount the officer considers adequate, for the protection of the Government.
(2) Payment bond.--A payment bond with a surety satisfactory to the officer for the protection of all persons supplying labor and material in carrying out the work provided for in the contract for the use of each person. The amount of the payment bond shall equal the total amount payable by the terms of the contract unless the officer awarding the contract determines, in a writing supported by specific findings, that a payment bond in that amount is impractical, in which case the contracting officer shall set the amount of the payment bond. The amount of the payment bond shall not be less than the amount of the performance bond.
(c) Coverage for taxes in performance bond.--
(1) In general.--Every performance bond required under this section specifically shall provide coverage for taxes the Government imposes which are collected, deducted, or withheld from wages the contractor pays in carrying out the contract with respect to which the bond is furnished.
(2) Notice.--The Government shall give the surety on the bond written notice, with respect to any unpaid taxes attributable to any period, within 90 days after the date when the contractor files a return for the period, except that notice must be given no later than 180 days from the date when a return for the period was required to be filed under the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.).
(3) Civil action.--The Government may not bring a civil action on the bond for the taxes--
(A) unless notice is given as provided in this subsection; and
(B) more than one year after the day on which notice is given.
(d) Waiver of bonds for contracts performed in foreign countries.-- A contracting officer may waive the requirement of a performance bond and payment bond for work under a contract that is to be performed in a foreign country if the officer finds that it is impracticable for the contractor to furnish the bonds.
(e) Authority to require additional bonds.--This section does not limit the authority of a contracting officer to require a performance bond or other security in addition to those, or in cases other than the cases, specified in subsection (b).

§ 3132. Alternatives to payment bonds provided by Federal Acquisition Regulation

(a) In general.--The Federal Acquisition Regulation shall provide alternatives to payment bonds as payment protections for suppliers of labor and materials under contracts referred to in section 3131(a) of this title that are more than $25,000 and not more than $100,000.
(b) Responsibilities of contracting officer.--The contracting officer for a contract shall--
(1) select, from among the payment protections provided for in the Federal Acquisition Regulation pursuant to subsection (a), one or more payment protections which the offer or awarded the contract is to submit to the Federal Government for the protection of suppliers of labor and materials for the contract; and
(2) specify in the solicitation of offers for the contract the payment protections selected.

§ 3133. Rights of persons furnishing labor or material
(a) Right of person furnishing labor or material to copy of bond.--The department secretary or agency head of the contracting agency shall furnish a certified copy of a payment bond and the contract for which it was given to any person applying for a copy who submits an affidavit that the person has supplied labor or material for work described in the contract and payment for the work has not been made or that the person is being sued on the bond. The copy is prima facie evidence of the contents, execution, and delivery of the original. Applicants shall pay any fees the department secretary or agency head of the contracting agency fixes to cover the cost of preparing the certified copy.
(b) Right to bring a civil action.--
(1) In general.--Every person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under section 3131 of this title and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due.
(2) Person having direct contractual relationship with a subcontractor.--A person having a direct contractual relationship with a subcontractor but no contractual relationship, express or implied, with the contractor furnishing the payment bond may bring a civil action on the payment bond on giving written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made. The action must state with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. The notice shall be served--
(A) by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor's residence; or
(B) in any manner in which the United States marshal of the district in which the public improvement is situated by law may serve summons.
(3) Venue.--A civil action brought under this subsection must be brought--
(A) in the name of the United States for the use of the person bringing the action; and
(B) in the United States District Court for any district in which the contract was to be performed and executed, regardless of the amount in controversy.
(4) Period in which action must be brought.--An action brought under this subsection must be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.
(5) Liability of Federal Government.--The Government is not liable for the payment of any costs or expenses of any civil action brought under this subsection.
(c) A waiver of the right to bring a civil action on a payment bond required under this subchapter is void unless the waiver is--
(1) in writing;
(2) signed by the person whose right is waived; and
(3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.

§ 3134. Waivers for certain contracts
(a) Military.--The Secretary of the Army, the Secretary of the Navy, the Secretary of the Air Force, or the Secretary of Transportation may waive this subchapter with respect to cost plus a fixed fee and other cost type contracts for the construction, alteration, or repair of any public building or public work of the Federal Government and with respect to contracts for manufacturing, producing, furnishing, constructing, altering, repairing, processing, or assembling vessels, aircraft, munitions, materiel, or supplies for the Army, Navy, Air Force, or Coast Guard, respectively, regardless of the terms of the contracts as to payment or title.
(b) Transportation.--The Secretary of Transportation may waive this subchapter with respect to contracts for the construction, alteration, or repair of vessels when the contract is made under sections 1535 and 1536 of title 31, the Merchant Marine Act, 1936 (46 App. U.S.C. 1101 et seq.), or the Merchant Ship Sales Act of 1946 (50 App. U.S.C. 1735 et seq.), regardless.

Surety Bond

From Wikipedia, the free encyclopedia.

A surety bond is a contract between at least three parties: (i) the principal, (ii) the obligee, and (iii) the surety. Through this agreement, the surety agrees to make the obligee whole (usually by payment of money) if the principal defaults in its performance of its promise to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal.

Suretyship bonds originated hundreds of years ago as a mechanism through which trade over long distance could be encouraged. They are frequently used in the construction industry: in order to obtain a contract to build the project, the general contractor (and often the sub-contractors as well) must provide the owner a bond for its performance of the terms of the contract. Conversely, owners and contractors may also provide payment bonds to ensure that subcontractors and suppliers are paid for work done. Under the Miller Act, payment and performance bonds are required for general contractors on all U.S. federal government construction projects where the contract price exceeds $100,000.00.

Surety bonds are also used in other situations, for example, to secure the proper performance of fiduciary duties by persons in positions of private or public trust.

A key term in nearly every surety bond is the penal sum. This is a specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal's default. This allows the surety to assess the risk involved in giving the bond; the premium charged is determined accordingly.

If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is rendered nugatory. Thus, the surety on a bond is usually an insurance company whose solvency is verified by private audit, governmental regulation, or both.

The principal will pay a premium (usually annually) in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred.

Work in Progress or Status of Contracts

The Work in Progress form is used for a number of underwriting functions and analyses. The answers to the questions on the form will allow the surety underwriter to view a time slice to see how many contracts you are working on, bonded and unbonded, and how far you have progressed based on how you actually bid the job. It gives a number of indicators that relate to the profit estimates, payments, and percentage of completion for those contracts. The better the profit, the better you look.

This form can be linked to aging accounts that are used for accounts receivable. This determines how long it takes your obligee or owners to pay you. It can also indicate whether there is a problem with your work or whether the obligee is having cash flow problems and not timely paying you. If there is a long lag in your receipt of payments for work performed, the surety may ask whether you will be able to pay your own bills in the absence of the obligee’s payment to you. It also determines whether you are timely in paying your suppliers.

Alternatively, the form could show that most contracts are complete and that the new job or contract will not be a high risk or burdensome to the contractor.

Time and care should be taken to make sure that the form is filled out properly and accurately and that totals are provided. If the form is not totaled the underwriter will not process it and return it to you for completion. Being thorough minimizes time delays.