Category Archives: In the news

The SBA Works to Break Down Barriers as the White House Disperses $60 Billion to States

The Small Business Administration (SBA) is advocating for more small businesses to partner with federal contractors, particularly with the latest advancement to update critical infrastructure throughout the U.S. With the passing of the $1 trillion infrastructure law, the Biden administration made available about $60 billion to the states earlier this month. These funds are earmarked for rebuilding critical infrastructure within all 50 states, including Washington D.C., and Puerto Rico.

The SBA has teamed up with the U.S. Dept. of Transportation to offer additional opportunities and access to capital while removing common obstacles small businesses often face. A new avenue was created for small and disadvantaged businesses to help connect companies with contracting opportunities and be able to access some of these funds. This includes actions such as direct introductions and educating small business owners on how to be competitive in securing contracts.

The much-needed critical infrastructure work ranges from rebuilding roads and bridges to buildings and public transit. SBA administrator Isabel Guzman reports, “That technical assistance is going to give them the how-to in terms of going after, successfully bidding on, and winning contracts in the federal space.”  

In 2021, the U.S. infrastructure was given a C- by the American Society of Civil Engineers (ASCE), which is up from a D+ in 2017. Seventeen categories were assessed in 2021, with grades ranging from a B for railroads to a D- for transit.

Small businesses have a difficult time obtaining federal contracts compared to larger entities, in part due to contract bundling. Bundling occurs when multiple tasks are entered into contracts that balloon, causing the contracts to become so large that small and medium-sized businesses can’t take them on.

Another barrier is the lack of history. If a business cannot prove its historical performance, then they fail to compete, making it much more difficult to secure future jobs. This is what the SBA hopes to assist with; connecting businesses with subcontracting opportunities that, in turn, help build up their portfolio and give them a better edge to go after prime contracts.

“It comes down to expanding the number of opportunities and ensuring that small businesses are entering the contracting space, getting certified, and able to know the how-to’s of who to connect to, how to present yourself, and how to get money,” Guzman says.

The SBA is also assisting small businesses within the transportation sector to get bonds, which guarantee agreements. Most federal contracts require businesses to be bonded. Surety bonds are a type of insurance with a three-party contract in which the surety guarantees a contract’s completion, i.e., with the federal government. If a contractor is unable to complete a project, the responsibility falls on the surety company to find a replacement contractor.

It’s estimated that about sixty-five thousand contracts were received by small businesses in 2021, down by almost 40% over the past decade. While the SBA and the U.S. Dept. of Transportation have not enumerated a goal, this partnership aligns with the current administration’s objective to advance the equity in government procurement. The federal administration has set an 11% federal contracting goal for small, disadvantaged businesses, with an increase to 15% by 2025.

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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MDOT Showcases Roadwork Funded by Whitmer Bonds

Specific sections of roadway are being showcased by the Michigan Department of Transportation by way of signs that say, “Bond Financing at Work,” which alludes to Governor Gretchen Whitmer’s 2020 road bonding plan. 

MDOT spokesman Jeff Cranson said about 15 green signs ($750 each) have been installed throughout the state with plans to install more. One sign, located in a construction area on Interstate 496 in Lansing, is meant to assure “that the work is being done,” according to Cranson. 

“Installing these signs is consistent with MDOT’s objective to be transparent and provide the public with as much information as possible about road projects,” Cranson said.

House Republicans who have opposed Whitmer’s bonding plan added a stipulation to the transportation budget requiring that the signs mention the monetary amount paid by the state in interest and borrowing costs to repay the bonds. 

Currently, the 2022 budget requires construction and borrowing costs to be listed on the signs. MDOT is not complying with the law, so the 2023 budget approved by the House includes provisions for non-compliance. 

Cranson says the addition of words or signs as outlined by the House budget would increase the cost of each sign. 

In 2020, Whitmer suffered from a failed bid to bump up the state’s gas tax by 45 cents a gallon to finance road renovations. In response, she launched her “Rebuilding Michigan Plan,” announcing it during her 2020 State of the State address. The next day, the Michigan State Transportation Commission authorized the department’s use of bonding.

Rough estimates by economists showed that the $3.5 billion program would total approximately $5.2 billion if the state remits annual debt bond service payments of $206.6 million for 25 years. About $529 million of the $1.6 billion issued thus far has already been spent or is spoken for, with an additional $1.9 billion in bonds to be sold in the future. 

At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Surety Bond Use In Everyday Life

Surety bonds are a part of everyday life.  Many individuals don’t understand the concept of bonds and how they are used to protect parties entering into a contract with one another.  In basic terms a surety bonds are a binding legal agreement that offer financial guarantees to the parties involved in a multitude of contracts.  Surety bonds state that one party, known as the surety is obligated to a second party, the obligee , in case of a default by the third party, the principal.

Various categories of surety bonds:

Contract surety bonds offer both financial security and construction assurance on projects both building and construction.  Contract surety bonds assure the project owner that the contractor will meet the requirements set forth in the contract.  If the contractor fails the project owner the surety company will cover the contract requirements so that the project owner is not at risk of loss.  The surety offers a guarantee that the contractor will perform the job stated while meeting their financial obligations to subcontractors, material providers and employees.

Bid bonds ensure that a contractor submits a bid that is intended to meet the needs of the contract.  The price of the bid that is submitted covers the financial obligations of performing the work as stated in the contract while covering the expenses on their end.

Performance bonds ensure the project owner is covered from loss if the contractor fails to perform the contract as stated and agreed upon.

Payment bonds are in place to make sure that the contractor is liable for the expenses to subcontractors, laborers and materials related to the contract that was entered into.

Maintenance bonds protect project owners against defects in materials or workmanship for a specific, agreed upon period of time.

Subdivision bonds ensure cities, counties and states that the principal, contractor of a subdivision, will financially cover and construct improvements within the sub like streets, sidewalks, curbs, street gutters, and more to make sure the sub meets stated requirements.

License and permit bonds are obtained to allow certain businesses to do business. An example of these bonds include: construction bonds, motor vehicle bonds, employment agency bonds and more.

Fiduciary bonds secure that administrators, executors, guardians and such will perform duties in line with court stated orders.

Different bonds are used in special situations to guarantee that contracts or duties are performed as contracted.  Many people confuse insurance and bond however they are completely different.  Insurance is used to protect individuals or businesses from themselves or others where as bonds are used to make sure expectations are met by others.  Both protect against loss of finances.

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 https://www.bondingspecialist.com.

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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 https://www.bondingspecialist.com.

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Top News in the Mentor-Protégé Program

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

 

 

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Auto Dealer Surety Bonds in Claim Process

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 https://www.bondingspecialist.com.

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