22:35
Faizan
With Surety Bonds, Timing can be critically important. There are certain things that must happen first. You can't get them out of order. Here are some examples. Do you know which comes first, and why?
Cover the answers with a piece of paper as you scroll down. (Paper is white stuff people used to write on. Really!)
1. Bid Bond / Performance Bond
OK that was an easy one. They get harder. Bid bonds always come first - if there is one. Not all performance bonds are preceded by a bid bond. Negotiated projects would be an example.
2. Bond execution / Indemnity Agreement execution
The Indemnity always comes before the bond. It is the promise to pay back the surety in the event of a claim / loss. Sureties want this protection in place before they assume any risk.
3. Bond / Premium payment
Actually, it depends on the surety and agent. Some, but not all, require payment in advance.
4. Surety Consent to final Payment / Obligee Status Inquiry
The Status Inquiry form comes first. It is the obligees statement that the work is acceptable. The surety requires to see this before agreeing to release the final payment. If there are unresolved issues, the contractor must address them before the last contract funds come over. (That's true motivation!)
5. Payment Bond release (exoneration) / End of Lien period
Since the bond guarantees the payments that may be owed during the lien period, the time for liens must end before the bond is concluded.
6. Contract acceptance / Maintenance bond issuance
Sureties want the contract accepted first and the P&P bond released before assuming the risk associated with a Maintenance bond. Some obligees require issuance of the maintenance bond simultaneously with the P&P bond, but underwriters resist this.
7. Bid Results / P&P bond issuance
Underwriters want to evaluate the adequacy of the contract price prior to bond issuance. They do this by evaluating the bid results, comparing the various proposals. In some cases, the bid results are not published, in which case they have wing it!
8. P&P bond for started project / All Right Letter
The All Right letter is the obligee's assurance that there is not already a problem on the contract that will result in an immediate bond claim. Sureties require a clean bill of health before bonding a started project (unless the degree of completion is very low i.e. 5%).
9. Award Letter / Notice to Proceed
Award letter comes first, then the contract signing and Notice to Proceed is issued.
Cover the answers with a piece of paper as you scroll down. (Paper is white stuff people used to write on. Really!)
1. Bid Bond / Performance Bond
OK that was an easy one. They get harder. Bid bonds always come first - if there is one. Not all performance bonds are preceded by a bid bond. Negotiated projects would be an example.
2. Bond execution / Indemnity Agreement execution
The Indemnity always comes before the bond. It is the promise to pay back the surety in the event of a claim / loss. Sureties want this protection in place before they assume any risk.
3. Bond / Premium payment
Actually, it depends on the surety and agent. Some, but not all, require payment in advance.
4. Surety Consent to final Payment / Obligee Status Inquiry
The Status Inquiry form comes first. It is the obligees statement that the work is acceptable. The surety requires to see this before agreeing to release the final payment. If there are unresolved issues, the contractor must address them before the last contract funds come over. (That's true motivation!)
5. Payment Bond release (exoneration) / End of Lien period
Since the bond guarantees the payments that may be owed during the lien period, the time for liens must end before the bond is concluded.
6. Contract acceptance / Maintenance bond issuance
Sureties want the contract accepted first and the P&P bond released before assuming the risk associated with a Maintenance bond. Some obligees require issuance of the maintenance bond simultaneously with the P&P bond, but underwriters resist this.
7. Bid Results / P&P bond issuance
Underwriters want to evaluate the adequacy of the contract price prior to bond issuance. They do this by evaluating the bid results, comparing the various proposals. In some cases, the bid results are not published, in which case they have wing it!
8. P&P bond for started project / All Right Letter
The All Right letter is the obligee's assurance that there is not already a problem on the contract that will result in an immediate bond claim. Sureties require a clean bill of health before bonding a started project (unless the degree of completion is very low i.e. 5%).
9. Award Letter / Notice to Proceed
Award letter comes first, then the contract signing and Notice to Proceed is issued.
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