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The Importance Of Surety Bonds

Many business owners see the bonding process as one big pile of inconvenient paperwork. The reality however is that without the financial support of bonds along with the financial backing of surety bonding companies the entire construction process would be askew. This is why surety bonding is so important throughout construction process. Bonding ensures that all parties involved in a project are covered financially in order to complete the project at hand.  With bonding even if one party defaults on a contract the project will still have the financial backing it needs to continue.

Performance bonds are in place to guarantee that work on a certain project will be done to the specifications set forth in the contract within a certain timeframe. This allows other aspects of the project to be scheduled without the fear of loss that comes from rescheduling and such.

Consider the following: a renovation on a school. The process begins with the bidding process. School districts need to be certain that the contracted work can be completed within a certain time frame to ensure that when school starts in the fall the renovation is completed and children are not left without classrooms. If the work is not completed as specified many people will suffer. With bonds in place the obligee is protected from financial loss and is covered by the performance bond held by the contractor.

There are a variety of bonds used to ensure the flow of public construction projects. In order to bid on any government or public project contractors must have established a bid bond with a surety company. A surety company will look at the contractor’s history and determine a set fee on a bond. A bid bond states that the bid that is submitted is fair and reasonable. It states that a project can be completely fulfilled at the cost the contractor has bid. This ensures that contractors don’t manipulate the bidding process by submitting a low bid in order to get the contract only later to raise the amount required to complete the project.

Another bond that is required on public projects is a performance bond. A performance bond is a guarantee that states work will be performed as set forth in the contract. The work is performed using specific materials, with a specific time frame and is done so as stated within the contract. A performance bid protects the project owner from subpar workmanship and work not being performed within a certain time frame. With all construction projects a clock is ticking. One error on the part of a contractor or subcontractor can quickly spiral out of control. Bonds are used to ensure that the financial liability does not fall on the project owner. All contractors have the same goal: to complete the job in a timely manner with the expected outcome. Construction bonds help to protect all parties against financial catastrophe.

Surety bonds do not replace the need for insurance. Liability insurance is different that a contractor’s bond. Bid, performance and payment bonds are all used as another level of protection against things that occur that cannot always be controlled throughout the construction process.

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Ending The Confusion When Hiring A Contractor

If you are confused about hiring a contractor to do work around your home you are not alone.  The terminology is a bit confusing, laws in each state are different and regulations are constantly changing which makes the whole process of hiring contractors to perform work on your home is difficult.  Licensing within different trades be it electricians, plumbers, construction or heating and cooling are very specific as well.  Below we attempt to define the terminology used throughout the industry and how it relates to specific contractors within different industries.

  • Licensed Contractors: A license is granted to contractors throughout different trades as authorized by local and state laws. This ensures that the contractor has passed tests regarding their business practices, trade skills and ability to pay for the fees associated with the required license and bonds.
  • Registered Contractors: Contractors that have been registered are only required to prove they are offer insurance and can pay the required fees. These requirements are often less stringent than what is required for a contractor to become licensed.  To be a registered contractor you rarely have to pass any trade related competency tests or to be bonded.  Licensing and registration terms are often used interchangeably.
  • Bonded Contractors: Contractors that are bonded have obtained an agreement with a third party, a private company that offers surety bonds, to ensure that the consumer is protected against any misdoings by the contractor. If contractors fail to perform work as contracted, fail to pay for materials or their subcontractors or what not, their customer can petition the surety company for reimbursement for the failure of the contractor to perform as stated within the signed contract.
  • Insured Contractors: Contractors should all be insured. They should hold two types of insurance: liability insurance and workers compensation.  Liability insurance protects the homeowner against damage done to their property.  Workers compensation protects workers hired by the contractor from coming after the homeowner if injured or killed while working on your home.

Before choosing a contractor to complete work around your home verify you are protected from wrongdoing.  Ask contractors for all certificates that state they are registered, licensed, bonded and insured.  If the status of any of these certifications is questionable don’t feel pressured into hiring this individual contractor.  All certificates should be current and cover all aspects of the project that is to be completed.  Once you have confirmed and verified a contractor be sure to file copies of all paperwork, certifications and such in a place that is easily accessible.  This will ensure if proof of you will have it at your finger tips.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

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The Difference Between Insured and Bonded Contractors

When hiring a contractor there is a big difference between contractors that are insured, a contractor that is bonded or one that is both insured and bonded.  Exactly what are those differences and how do they affect you as a homeowner?

When a contractor is bonded and insured it offers an incentive for homeowners to hire them over a contractor that is not.  Reputable home improvement specialists purchase bonds and insurance to protect consumers they work for while offering recourse in case something should go wrong.

A contractor’s bond offers protection to consumers against contractors failure to complete the job as the contract states, doesn’t pay for the proper permits or other financial obligations and such.  In order for a contractor to become bonded they must pay a premium to a surety bonding company.  Once the premium is paid by the contractor they are given a bond number and certification that confirms the surety company has agreed to provide protection to the consumer against several different issues that can arise from contractor error.

If you as a consumer feel that the work completed by the contractor is subpar or if materials and subcontractors aren’t paid they can contact the surety company direct to submit a claim.  The state and municipality where you reside will determine the bonding requirements contractors must meet to ensure they have the proper contractor bond.  Be sure to research these requirements before you hire a contractor to do work within your home or business.

A contractor that states they are licensed to perform work is different than those that are bonded.  Two types of insurance commonly associated with contractors in the construction industry: liability insurance and workers compensation.

Liability insurance protects against property damage that occurs because of work that is performed by the contractor.  It does not however cover issues related to poor quality workmanship.  Those issues are covered under a contractor’s bond.  This is why hiring a contractor that is both insured and bonded is important to protecting you as a consumer.

Workers compensation insurance is purchased by contractors to project against workers lost wages and medical services when they are hurt on the job.  The families of the worker are also compensation benefits through workers comp insurance in the event of a death that occurs while at work.  This is important insurance to look for as a homeowner when hiring a contractor to avoid being financially responsible for injuries that occur on your property while contracted work is being done.

To protect against any wrong doing on the part of the contractor be it intentional or unintentional it is important for homeowners to require contractors working for them to be both insured and bonded.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

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Bonds Regularly Used Within The Construction Industry

Within the construction industry bonds are frequently used to help reinforce industry regulations and contractor/client relationships.  Many of us outside the construction and bonding issue are at a loss when trying to understand the purpose of construction bondsas well as how they work to benefit each individual in the process.  Don’t worry though because this article will shed some light on the different bonds needed when working within the construction industry.

Below, we will offer a detailed look into the four most common surety bonds that construction professionals should familiarize themselves with.  The most frequently requested contract bonds that help to regulate the construction industry are as follows:

Contractor license bonds are purchase by a contractor in order for them to become licensed within the state to work within the construction industry as a legitimate business entity.  Different states, counties, cities and subdivisions often require their own license bond.  Without the necessary paperwork filed contractors will not be able to obtain the proper licenses.  If a contractor does not have the proper licenses they will be faced with penalties, fines, legal action and license revocation.

A bid bond is not always necessary but frequently requested when a contractor is submitting a financial proposal on a project to the owner.  The project owner may require a contractor to obtain a bid bond before accepting the contract that is being proposed.  A bid bond offers a guarantee that the contractor enters into the contract in good faith.  This means that the services and materials can all be provided per the terms of the contract.

Payment bonds are required for all jobs over $100,000 under the federal Miller Act.  A payment bond helps to ensure that all subcontractors and suppliers of materials get paid for their contributions to the project.  This type of bond protects a project owner from assuming these expenses if the contractor fails to pay them.  Payment bonds ensure that unpaid parties are paid through the liability of the payment bond.  The contractor is ultimately responsible to reimburse the surety company if payment to subcontractors or material suppliers if the payment bond is required.

Performance bonds are often paired with payment bonds as they both offer protection to the owner of the project against any loss because of shortcomings of the contractor.  A performance bond ensures that the project is completed as stated it should be in contract.  It also states that the project will be performed on time as stated.  If the projected is not performed, the owner can make a claim against the bond if unsatisfactory work is performed or the work is not done on time.  If the claim is valid the bond is paid by the bond company the contractor has to pay bond.

A bond company tries to only issue surety bonds to those contractors believed to be worthy of upholding their contractual obligations.   The process of qualifying for surety bonds can be a difficult process for construction professional.  Understanding how surety bonds work and working with a company that specializes in issuing bonds can help for a smoother process overall.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

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Four Popular Surety Bonds for Small Businesses

Surety bonds are often associated with insurance.  This is understandable for a few reasons.  Bonds provide coverage for losses that are incurred and are often sold by insurance agents.  The difference however is that with surety bonds they must be noted where as regular insurance does not.

In the article below we will discuss several types of surety bonds that small businesses need.  There are about twenty five thousand types of surety bonds available.  Below we will discuss the five most common types of bonds that a variety of small businesses should consider having before they begin operating.

Surety Bonds for Construction

Within the construction industry bonds are often required of contractors.  A license and permit bond is often required before a license is issued whereas performance bonds are more job specific.

License and permit bonds are required of contractors before a license can be issued.  This is to safeguard residents within the state from financial losses.  These bonds are often inexpensive based upon the contractor’s credit rating.  They can cost anywhere between two hundred and one thousand dollars.

Performance bonds are issued based upon the job.  It is issued to cover the performance that is contracted; this can be for a variety of reasons such as having a deadline to follow or a budget to stay within.  When a contractor is licensed and bonded it provides a financial confidence to their clients that the project they are contracted to provide will occur as stated within the contract.

Surety Bonds for Cleaning Businesses

When your occupation requires that you enter private property, such as in cleaning and janitorial services, it is important to acquire a janitorial service bond.  With the access workers are given to personal belongings it is important to have reassurance that businesses and homeowners are protected from theft.

When a cleaning crew is licensed and bonded they are providing extra assurance.  Their clients are protected from the service provider and their employees in case of thievery.  These bonds are inexpensive and communicate that your business is one that can be trusted.

Surety Bonds for Notaries

Integrity is important when it comes to notaries and the services that they provide.  A notary is a legal authority that authenticates documents.  A notary bond is purchased to protect against notaries that choose to act unethically.  A notary bond is usually inexpensive often as low as thirty dollars for a four year term and don’t usually provide a concern for those looking to become notaries.

This type of bond is issued based on a set of conditions that must be met in order for the notary to become licensed.  These conditions must be met before they are allowed to conduct notary services within a state.

Surety Bonds for Car Dealers

A motor vehicle dealer bond is required in order to provide protection against unethical practices that are committed by car dealers and their employees.  This is a relatively inexpensive business expense for most car dealers.  A motor vehicle bond prevents customers from being deceived by car dealers.  It offers assurance that car dealers will not sell stolen cars or sell a car based on misleading information.

As you can see is that surety bonds are not insurance but more a type of reassurance that the goods and services that are provided to consumers will be provided in good faith.  Surety bonds are purchased in order to prove that business is done in good faith.  It is an extra guarantee that goods and services are provided as contracted.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

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Surety bond guarantee hike seen as boon for small business

The Connecticut Business & Industry Association reports that small businesses will have more contracting opportunities beginning in 2017. A law recently signed by President Obama increases the maximum Small Business Administration surety bond guarantee percentage from the current 70 percent to 90 percent.

“This is the first significant legislative change to the surety bond guarantee program in several decades,” says Frank Lalumiere, surety bond guarantee program director at the SBA. “It will provide increased incentives for surety bond companies and bond producers to participate in the program, which will expand contracting opportunities for small businesses across the country.”

Surety bonds protect project owners in the event a contractor fails to successfully perform the contract. In such an event, the surety company assists the project owner in completing the contract.

The SBA does not provide direct surety bonds to small businesses; surety companies do. But through its Preferred Surety Bond program, the agency guarantees between 70 and 90 percent of the losses and expenses incurred by the surety company if the small business fails to complete the contract. This government guarantee encourages the surety company to issue a bond that it might otherwise not issue. In turn, with the backing of a surety bond, a contractor may bid on a project that otherwise it could not bid on.

Original Source: http://www.centralctcommunications.com/newbritainherald/article_97a7ed64-b8d8-11e5-865e-63255e5dfc14.html

 

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Exactly What is a Construction Surety Bond

A construction surety bond is commonly known as a contractor’s license bond.  It is used to make sure that a construction project is completed as stated within a given contract.  In the event that the contractor is unable to complete said contract on time, within budget or other ramifications stated within the contract the surety company will guarantee payment to the owner to prevent financial loss.  This leaves the contractor on the hook to the surety company to pay back the amount that was paid out by the surety company.

In short a project owner or oblige enters into a contract with the principal or contractor to complete a specified project.  Then the contractor or principal secures a surety bond from a surety company or surety broker who sells contractor’s license bonds.  Local surety brokers can be found throughout online searches by looking under, “surety bonding firms or surety bonding companies”.

If a contractor fails to complete the project as stated within the contract the surety company must compensate the owner of the project for any loss or find another contractor that can complete the contract as stated.  The surety company may then proceed to seek repayment from the original contractor for their losses.

When it comes to any federal, state or local government project the contractor is required, by law, to be bonded in order to bid.  In fact some areas require a bond be in place before they will even consider issuing a contractor a construction license.

Surety bonds don’t only protect the project owner they work to cover subcontractors that are hired in order to complete projects that are contracted.  The surety bond will cover the expense of suppliers, subcontractors and damage that occurs to the property as a direct result of the construction project as well as tools and materials that are damaged or stolen.

Construction surety bonds are only sold through certain agencies that are known as bond producers or bond agencies.  The job of a surety agency is to work with contractors throughout the entire process of obtaining a bond as well as creating a relationship where they continue to supply bonds to the contractor as their construction companies grow and take on new commitments.  A bond producer plays an important role.  They should provide the following services:

  • The surety company offers advice that increases the profitability of the company by looking into management and all the technical aspects of the business.
  • The surety company will help contractors with their relationships with other service providers such as industry experts like accountants and attorneys.
  • In order to ensure that the financial requirements are met by the contractor seeking a surety bond the company is responsible to review all financial documents that are required by contractors seeking bonds.
  • The surety company is responsible for ensuring that the contractor has a surety bond that matches up with their needs. Most surety producers have relationships in which they offer bonds to more than one company.  With this in mind it is important that the surety producer is able to maintain relationships with several various surety carriers at one time.
  • The main point of contact for a contractor is the surety producer. This remains the same throughout the entire bonding process.  The surety company must remain in contact with both the contractor and the carrier throughout the entire process of the project.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

 

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Three Basic Bonds Used In the Construction Industry

There are three basic type of bonds used within the construction industry.  They are the bid bond, the performance bond and the payment bond.   These three basic types of bonds are used to guarantee that contractor will perform the work contracted, at the price contracted within the period of time contracted.  If this doesn’t occur the bond company will pay the owner to prevent financial loss and the bond company will collect payment from the contractor.  Below is exactly how bid, performance and payment bonds work.

  • Bid Bonds: This type of bond is obtained to guarantee that the bid that is submitted is in good faith. It states that the contractor enters into the contract at the price that is bid and will perform the required performance and payment bonds.
  • Performance Bonds: This type of bond is obtained to protect the owner of a project from any financial loss if the contractor fails to perform the contractor as stated in the terms and conditions.
  • Payment Bonds: This type of bond assurers that a contractor will pay the price specified to subcontractors, laborers and material suppliers as guaranteed within the contract.

In order to prequalify contractor needs to prove to a sureties company that they are an acceptable risk.  It is up to sureties to accept the risk of contractor’s failure based on a thorough analysis that pre-qualifies the contractor.  This ensures that the contractors business is a risk worth taking.  It is an in-depth analysis that ensures the contractor’s business operations are legit.

The surety company must be completely content that the contractor meets certain criteria before issuing a bond.  The criterion looks something like the following:

  • High-quality references with integrity and solid business reputations.
  • A strong ability to meet all of their current and future obligations in respect to both financial and employee abilities.
  • Industry experience that matches the requirements that are stated within the contract.
  • Equipment that is necessary to perform the work that needs to be done or the ability to obtain it when it is needed.
  • The strength financially to support the desired load of work that is contracted within the contract period.
  • A credit history that is established and a relationship with a bank that extends a line of credit if needed.

As a surety company it is important that they are satisfied that the contractors that they have extended surety bonds to will satisfy their requirements. The contractor should run a well managed, profitable company that fulfills their word fairly and performs all of their obligations within a timely manner.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

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Legal Landscape: Top News in the Mentor-Protégé Program, Bond Claims & DBE Fraud

Welcome to the third edition of Onvia’s Legal Landscape, a series designed to provide government contractors with a quick, but thorough, summary of important legal developments in government contracting and a plain-English explanation as to how these developments may affect contractors. In this issue, we discuss recent trends in federal, state and local government contracting. Contractors should keep in mind that state and local agencies often look to changes in federal regulations as a guide for future changes at their respective levels. Changes recently made in the federal arena are likely to trickle down to state and local governments soon.

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1) The SBA Offers Some Specifics on the Expansion of the Mentor-Protégé Program

As many government contractors may know, in February 2015, the U.S. Small Business Administration (SBA) issued a proposed rule aimed at expanding its mentor-protégé program. The proposed regulations would implement changes introduced by the Small Business Jobs Act of 2010 and the National Defense Authorization Act of 2013, and would permit a wide array of small businesses to participate in the SBA’s mentor-protégé program. Currently, only 8(a) certified firms can take advantage of the many benefits offered SBA’s mentor-protégé program, including a broad exception to affiliation for mentor-protégé joint ventures.

While this was great news for many back in February 2015, it has been nine months since this proposed rule was issued and we have yet to see an interim, or a final, rule. The delay has many government contractors asking when the SBA is actually going to put these changes into effect. Well, we now have some idea: Sometime in the first quarter of 2016.

On October 27, 2015, the U.S. House of Representatives’ Committee on Small Business Subcommittee on Contracting and the Workforce, chaired by U.S. Representative Richard Hanna, held a hearing entitled “Maximizing Mentoring: How are the SBA and DoD Mentor-Protégé Programs Serving Small Businesses?” Based on the testimony given at the hearing, and the information compiled in the Subcommittee’s related memorandum, it appears that a final rule will be issued in the first quarter of fiscal year 2016, and that the agency hopes to launch a pilot program sometime in the summer of 2016.

Key takeaway for government contractors:

The expansion of the mentor-protégé could mean a lot more flexibility for small businesses. HUBZone, SDOVSB and WOSB/EDWOSB companies would have the ability to joint venture with larger mentors without the risk of affiliation. This, in turn, would make these small companies much more competitive.

2) The Importance of Complying with the Specific Requirements of Bond Claims

Ok, so this isn’t really a “new” legal development, per se. The requirements relating to bond claims is an issue that has been discussed among government contractors since, well, since bonds have been a requirement. However, while bond claims are often discussed, they are also commonly misunderstood. Many contractors do not fully understand their obligations concerning timing, notice, or procedure to perfect a bond claim. This is particularly true when it comes to performance bond claims against bonded subcontractors. In this context, contractors often fail to comply with their obligations and are adversely impacted. A recent Missouri case is just the latest example of this, and serves as a harsh reminder that the failure to comply with bond requirements can nullify an otherwise legitimate bond claim.

In that case, a plaintiff-general contractor, Curtiss-Manes-Schulte (CMS), subcontracted work to Balkenbush Mechanical, Inc. (BMI) on a renovation project located at Fort Leonard Wood, MO. Safeco Insurance Company of America (Safeco) provided the performance bond for BMI. As the project progressed, BMI fell significantly behind schedule. CMS informed Safeco, through a “Contract Bond Status Query” that BMI was not progressing satisfactorily, the contract was 9 months past due and liquidated damages would be assessed. However, CMS did not declare the subcontractor “in default,” a requirement under the bond. BMI ultimately abandoned the project, and then filed for bankruptcy protection. After completing BMI’s work itself and incurring significant additional costs, CMS made a claim against Safeco under BMI’s performance bond, citing BMI’s failure to perform. Because CMS never technically defaulted BMI, Safeco refused to pay CMS’ demand, asserting that CMS had failed to satisfy the bond requirements. CMS then sued Safeco.

In assessing CMS’ performance bond claim, the United States District Court for the Western District of Missouri noted that the performance bond specifically provided that the subcontractor had to be declared in default, and, further, that Safeco had to be notified of that default. Because CMS never formally defaulted BMI, and, in any case, never informed Safeco that BMI had been defaulted, the Court found that Safeco’s obligations under the bond were never triggered.

Key takeaway for government contractors:

Make sure you are aware of the specific terms of each and every bond that could affect your interests. Contractors tend to pay close attention to “upstream” bonds relating to payment but forget about how important the rules are when it comes to “downstream” performance bond claims. It is imperative that all government contractors understand the terms of all relevant bonds, and their obligations thereunder, as well as any federal, state or local statutory or regulatory requirements relating to those bonds. Otherwise, they risk forfeiting a perfectly legitimate claim. If you have any questions about the terms of a particular bond, or the applicable regulatory or statutory requirements, consult a legal professional.

3) Third Circuit Creates “Offset” Exception for Damages Relating to State DBE Fraud

In the last issue of Legal Landscape, we talked about the increased importance of the False Claims Act and the uptick in fraud actions by the Federal Government, as use of the FCA has expanded. As previously discussed, state and local governments have followed suit by aggressively prosecuting contractors for making false statements, or claims, of various types and kinds. As part this process, many local governments have increased the amount of monetary damages, and broadened the types of penalties, associated with fraud and false claims actions, including suspensions and debarments. Overall, there has been a marked trend over the past five years toward the draconian enforcement of fraud-related regulations and statutes, the expansion of liability, and the imposition of increasingly serious penalties.

A good example of the above is the Federal Government’s Presumed Loss Rule, introduced by the Small Business Jobs Act of 2010. The Presumed Loss Rule provides that, if a concern willfully misrepresents its size or status to receive the award of a federal contract, subcontract, grant or cooperative agreement, the loss to the government is presumed to be the total amount expended by the government under that contract, subcontract, grant or cooperative agreement. In other words, if you lie to the government about being small to get a contract, the damages assessed against you will be equal to the total amount of that contract. That’s a pretty stiff penalty, but it is entirely consistent with the trend toward escalating enforcement and prosecution.

One recent case may signal a slight shift in the other direction. In United States v. Nagle, the Third Circuit found that the damages assessed against a contractor found guilty of fraud on a state government contract had to be “offset” against the fair market value of the services provided under that contract. In Nagle, the co-owners of Schuylkill Products Inc. (SPI) and its wholly owned subsidiary, CDS Engineers, Inc. (CDS), engaged in fraud-related crimes in connection with PennDOT and SEPTA contracts. In order to take advantage of contracts with Disadvantaged Business Entity (DBE) participation requirements, SPI and CDS – both non-DBE entities – set up a “front” DBE subcontractor, Marikana. SPI and CDS “subcontracted” to Marikana, but, in reality, they performed all of the work on Marikana’s subcontracts. SPI and CDS paid Marikina a fixed fee for its participation, but otherwise kept the profits for themselves.

When this scheme was uncovered, the owners of SPI and CDS were charged with fraud. In analyzing the appropriate damage assessment against the owners, the U.S. District Court for the Middle District of Pennsylvania determined that the amount of loss each defendant was responsible for would be equal to the face value of the contracts that the DBE front company was awarded. Such an assessment was consistent with the Presumed Loss Rule outlined above.

However, on appeal, the Third Circuit disagreed with the lower court’s damage assessment. The appellate court held that, in a DBE fraud case, the amount of loss attributable to defendants should be calculated by taking the face value of the contracts and subtracting the fair market value of the services rendered. The court further clarified that “fair market value” can be calculated by the value of the materials supplied, the cost of the labor necessary to assemble the materials and the value of transporting and storing those materials. In other words, the damages assessed to a defendant for DBE fraud must be decreased to account for the fair value of services actually provided by that defendant.

Key takeaway for government contractors:

Nagle dealt with DBE fraud committed in connection with Pennsylvania state contracts, which were funded through the U.S. Department of Transportation. The Nagle decision was rendered by the Third Circuit, which means the case could be considered controlling in Pennsylvania, New Jersey and Delaware. It is not yet clear whether other jurisdictions will carve out similar exceptions, or whether the majority of other states will adhere to something more similar to the Federal Presumed Loss Rule. It is further unclear as to whether the exception in Nagle would apply if SPI or CDS had misrepresented their own DBE status, rather than arranging for a front DBE subcontractor. In any case, the damages associated with a potential fraud matter can be quite severe. It is important to understand the rules and make sure that you and your subcontractors are not engaging in any conduct that might constitute fraud.

Original Source: http://www.onvia.com/blog/legal-landscape-top-news-in-the-mentor-protege-program-bond-claims-and-dbe-fraud

 

 

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Major Points Of The Claim Process In Auto Dealer Surety Bonds Continued

In this installment of surety bonds we will continue to look at major points of the claim process in auto dealer surety bonds.

Eligibility

Only certain consumers are eligible to process a claim against the auto dealerships surety bond.

–          Consumer Purchaser:  Most of the claims that a consumer will make are related to the auto dealer’s failure to report the sale and not producing a title for the vehicle.  This creates a multitude of issues for the buyer.  Other claims involve the dealership not paying off the vehicle that was traded in, when the mileage on the odometer has been changed or the condition of the car was not reported and clearly becomes evident after the purchase.

–          The Seller of a Motor Vehicle:  A seller may file a claim if an auto dealership fails to pay for cars sold to the dealership or through the dealership.  This seller may be another car dealer, an individual, a consignor, a regional or national auto auction.

Be Prepared

Auto dealers should follow these basic steps when a claim is presented against them.
–          Auto dealers need to understand and follow the rules that are set by your state’s department of motor vehicles.  It is important to meet all of the terms within the contracts to avoid complications later on.

–          Auto dealers should always be honest.  They should ask the claimant for proof of their loss.

–          All communication should be documented.  All correspondence, statements and agreements should have proper documentation.

–          Auto dealerships should always be proactive in finding a solution to problems that have arisen before an official surety bond claim.

Look for assistance from the surety bond agency

When a claim is brought to the attention of the surety bond company all of the parties involved in the argument to explain their side of the story.  The guarantee that is offered by the surety bond company is that if they don’t find the claim to be legitimate they will not pay.  The opposite is true as well, if the evidence is found to be against the dealership the dealer will be obligated to pay the claim up to the bond’s penal sum.

Bonding company’s provide legal defense on your behalf; often leading to a winning verdict on your behalf.  It should be understood that if they end up paying the claim due to the dealerships negligence the legal fees plus the amount of the claim will need to be reimbursed.

Protect yourself and your dealership

Claims do arise against auto dealer surety bonds.  It is important to protect yourself.  Be sure that your dealership follows all industry regulations.  If you are honest in your dealings with customers you have nothing to be worried about.

Keep all licenses up to date, renew bonds on time and file all necessary paperwork diligently.  If a claim happens to arise you will easily be able to plead the case against the dealership without hurting business.

Construction Bonding Specialists, LLC are dedicated Surety Bond Professionals that are aligned with several Treasury Listed and AMBest Rated Surety markets which allows them to assist with virtually all Bid, Performance and Payment, Financial Guarantee and Supply bond needs.  Find out more information at http://www.bondingspecialist.com.

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