Masonry Magazine February 2003 Page. 44
Legal Advice
Insurance:
Taking the Mystery
Out of Bonding
John L. Cramer, AΑΙ
TriSure Corporation
Cary, N.C.
Performance and Payment Bond required of successful bidder.
More than any other language in the bid specs, these eight words probably affect the decision of most masonry contractors whether or not they will bid a job. Many contractors will consider this wording as an absolute reason to pass on a job, while a smaller group of contractors are waiting for the specs that have this wording in it. Understanding the basics of bonding will help demystify the concerns that most contractors have about bonding and possibly help them understand that that being "bonded" can be a significant advantage when selecting which jobs they want to bid on.
One of the most common issues that confuse people about bonds is that they do not work like insurance. Bonding is a financial guarantee that requires you to indemnify and pay back the bonding company all monies, costs and expenses incurred if you fail to perform as outlined in the construction contract and a demand is made. Bonding is an Indemnity Contract and you will most likely be required to sign an Indemnification Agreement both corporately and personally, stating that you will be responsible for any funds paid.
Bonds for masonry contractors are mostly composed of two basic kinds; Bid Bonds and Performance/Payment Bonds. A Bid Bond is presented with the masons bid package on bid day. The Bid Bond usually specifies a penalty of five percent of the amount bid. This penalty is levied against the successful bidder if, and only if, the successful bidder withdraws their bid, for any reason, other than a qualified reason such as a scope omission or math error, and requires the bonded party to pay that penalty if they fail to agree to perform the work. In rare cases, some contractors who find their bid is substantially less than the closest competitor, elect to pay the penalty versus taking a job they suddenly suspect will cost them far more in losses than five percent of their bid amount. Oftentimes, these are tactically very good business decisions when you realize that your best competitors were 20 percent or higher than you on their bids and you might have made a serious mistake estimating.
Bonding is an Indemnity
Contract and you will
most likely be required to sign
an Indemnification
Agreement both corporately
and personally, stating that you
will be responsible for
any funds paid.
When a contractor is awarded the contract, a Performance and Payment Bond (P&P) is required before work progresses. This is paid for by the owner or general contractor, referred to as the Obligee, on the initial draw of the contract. This P&P bond essentially guarantees that the sub will perform the full scope of the work outlined in the contract documents, that the work will be performed with proper workmanship, according to acceptable standards, and perform the work on schedule and in the time allowed by the contract. Once the work is performed and completed, it will be turned over to the Obligee free of any liens, debt or encumbrance. In short, a Performance and Payment bond states that you will do what you agreed to do, in a quality manner, and ensure all of your bills are paid.
Establishing a Bond Line is a paperwork intensive project. Understanding what the Bond Company is looking for and how they underwrite makes the project a lot simpler. In simplest terms, a bond company evaluates a potential client on the basis of the three "C"s": Character, Capability and Capital. Character is essentially reputation and references. This is based on checking
www.masonryshowcase.com
THE "POST"
SPEED LEAD
Quick set up.
Quick take down.
Fewer parts.
One bracket assembly.
• Ideal for all applications of
brick veneering.
• Inside, outside, quion, and
angled corners.
• Invented and patented by a
bricklayer.
For information write or just call
(800) 525-8287
Marv Post Enterprises Inc.
2858 Sibley Hills Drive Eagan, MN 55121
CIRCLE 176 ON READER SERVICE CARD
42 Masonry February 2003