Bonding terms for projects can sometimes far exceed the norm in terms of the surety industry's standards and practices. It’s important for surety professionals to look for these types of onerous terms and address them early in the contracting process, said Tom Kelleher, senior partner with the law firm of Smith, Currie & Hancock.
An example of poorly written bond terms may include overly vague or broad conditions related to a surety's obligations. Such a situation arose with a California school district's project, prompting NASBP to write a letter encouraging the district to revise the onerous terms and offering to help craft language that would be conducive to bonding while providing adequate performance protection. Based on this letter, the school district modified some the more onerous bond terms.
Surety professionals need to be able to recognize the “red flags” that could signify onerous bond terms before a contract is signed, said Kelleher, who, along with two other presenters from his law firm, will participate in NASBP's upcoming Contracts and Bond Forms Workshop October 23-24.
The event also will include Steve Nelson, executive vice president of SureTec, to provide a surety industry perspective in addition to that of construction attorneys. The event also will allow participants to discuss their perspectives on these issues, Kelleher said.
The goal is to give surety bond professionals knowledge about what questions they should ask contractors to bring term problems to light, Kelleher said.
Some of the questions include:
--What do you know about the project owner's reputation? Has the owner done this type of project before?
--Are changes in the owner's staff likely to occur between the beginning and completion of the project?
--Do the terms tie a contractor to an extended warranty?
--Does the contract attempt to shift all design-error risk to the contractor?
The last two issues above are “cyclical” in terms of how frequently the federal government, local entities and other project owners attempt to impose such onerous terms, Kelleher said.
“Whether it holds up or not, frankly you don't want to find out,” he said. “But you darn well want to know about it going in.”
The event covers the basic next steps, such as recommending that a contractor seek legal advice when a red flag is identified in bonding terms, Kelleher said. It also uses actual contract language and industry forms to illustrate scenarios where onerous bond terms can arise, he said.
If a surety professional detects problematic bond language in a contract, he or she also can e-mail NASBP at info@nasbp.org so that the association can call the project owner or write a letter providing a strong industry viewpoint on the contract terms, as it did with the California school district project.
To register for the NASBP Contracts and Bond Forms Workshop, which will be held Oct. 23 to 24 in Dallas, click here.