Bond Claims: How to Make Them + How to Avoid Them

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Information about Bond Claims: How to Make Them + How to Avoid Them
Business & Mgmt

Published on February 26, 2014

Author: KeglerBrown



Kegler Brown, in conjunction with Overmyer Hall Associates, presented "Bond Claims: How to Make Them + How to Avoid Them" on Wednesday, February 26. This seminar focused on providing bond claim information and insurance updates to subcontractors and general contractors.


z Subcontractors Bond Claims: How to Make Them + How to Avoid Them Presented by Don Gregory and Jack Kehl Kegler Brown Hill + Ritter Overmyer Hall Associates February 26, 2014

z What is a Bond? + Bonds are legal documents designed to protect a one or more parties to a contract + There + Bid are three types of bonds: Bond + Payment Bond + Performance Bond

z Bond Forms + The bond format is a legal document and binding upon all parties to the contract Statutory Forms – Federal, State, Local + Industry Standard Forms + + + + + AIA 312 Consensus EJCDC Surety In-house Forms + Contractor Drafted Forms + Private (Individual) Sureties

z Payment Bonds – When to Make a Claim + Who is a proper claimant under the bond? + Subcontractors + Suppliers + Laborer + Others

z Who Can Recover Under Ohio Public Work? + “Subcontractor” Includes lower tiers + “Material + “Laborer” Supplier”

z Who Can Recover? Federal State Private Subcontractor (1st tier and 2nd tier if notice) Subcontractor (all tiers) Who knows? Material Supplier (1st tier) Material Supplier (all tiers) Read Bond Laborer Laborer

z What is a “Lawful Claim” Under Payment Bond? Yes No Labor Prompt Pay Interest + Fees Material Prevailing Wages Interest Union Pension Funds + Fees Payroll Taxes Workers’ Comp. Premiums Equipment Federal Taxes Attorneys’ & Consultant Fees

z Payment Bonds – What is Covered? + Subcontractors + Labor costs + Wages + Labor Burden + Lost Productivity + Materials + + If incorporated into project Rental Equipment (State) + Others

z Payment Bonds – What Forms are Used? + Bonds + Form + Bonds + on Federal Projects 25A on State Projects Form ORC 153.571 + Local Projects + Franklin Co. + City of Columbus + Common Law bonds – Sub to GC

z Timing of a Public Payment Bond Claim in Ohio Notice of Claim Suit 90 days after “final acceptance” Waiting Period 60 days File 1 year after “final acceptance”

z Federal Projects + Only A Bond Claim Is Available + Key Points To Remember – + If you are not in contract with the prime you must file your “notice” within 90 days after your last day of work. + Must file suit on the bond within 1 year from last day of work. + Limited Protection – no protection if you are providing material to a sub-subcontractor

z Payment Bonds – How to Make a Claim + Notice of Commencement + Notice of Furnishing + Documentation + Notice + Suit

z Two Phases + Phase 1 - Preserve Your Payment Bond Rights • Request A Notice of Commencement • Serve A Notice of Furnishing (if no contract with Prime) + Phase • 2 –File Your Bond Claim Bond Claim Affidavit

z Who Has to Serve a Notice of Furnishing? + You do not have a contract with the Prime (GC, CM, D-B) + Such + You as sub-sub or supplier to sub are providing labor and/or material greater than $30,000

z Not Required If + Less than $30,000 of labor and/or material provided + Subcontractor directly to Prime

z Step One: Request a Notice of Commencement + Provides information about an improvement, including bond Available upon request from Public Authority. Phase 1 – Preserve Your Payment Bond Rights

z Step Two: Serve a Notice of Furnishing + Puts the Prime Contractor on notice + Send by Return Receipt (certified mail) Phase 1 – Preserve Your Payment Bond Rights

z Notice of Furnishing for a Public Project

z When Do You Do All of This? + Simple Answer + Right + 21 When You Start Work /Furnish Material Day Window + “Better late than never” Phase 1 – Preserve Your Payment Bond Rights

z 21-Day Window Looking Back Looking Forward Preserved Going Forward Preserved if in the 21 Day Window NOF Phase 1 – Preserve Your Payment Bond Rights

z Phase 2 – Perfect Your Payment Bond Rights + Rumors + You Have Payments Overdue Phase 2 – Perfect Your Bond Claim

z Deadlines to Keep in Mind + Serve Bond Claim on Surety + 90 days from final acceptance of work by Owner + Surety has 60 days to “investigate” + File Suit + Within one year after final acceptance Phase 2 – Perfect Your Bond Claim

z Submit a Bond Claim to the Prime Contractor’s Surety Practice Tip: Obtain a copy of the Bond when you start the Project. This can be done via a public records request.

z Risk of Doing Nothing + Must file suit on a bond claim within one year of Owner Acceptance. + OR claim is waived

z Advantages of a Bond Claim Over a Lien + You know that the money will be there. + Cannot be trumped by owner’s claim for liquidated damages, cost to complete, etc. + Typically, have more time to assert bond claim.

z Performance Bonds – How to Avoid a Claim + Perform + Document + Communicate

z Questions?


z Trends for 2014 in Law + Insurance Presented by Jack Kehl and Joe Urquhart Don Gregory and Mike Madigan Overmyer Hall Associates Kegler Brown Hill + Ritter February 26, 2014

z Legal Trends 1. Less trials, more mediation 2. More legalistic notice and claims process 3. Harsh results for contractors who do not dot “i”s and cross “t”s

z Legal Review 2013 1. J&H – Tenth District Court of Appeals upholds contractor recovery against state 2. Transtar – “Pay-if-paid” under attack, and appealed to Ohio Supreme Court 3. Atlantic Marine – U.S. Supreme Court upholds venue provisions.

z What to Expect Legally in 2014 1. A “pay-if-paid” decision from the Ohio Supreme Court 2. Fallout from State’s new project delivery systems (such as more sub claims and less prime claims against State) 3. Greater use of referees in Court of Claims (to the benefit of contractors?)

z Insurance Trends - 2014 1. What to Expect from Rates 2. Capacity in the Marketplace 3. New Risk and Coverage Issues

z What to Expect From Rates – Down 5 to 10% + Casualty (GL) – Flat to up 5% + Auto – up 5% to 10% + Umbrella – up 5% to 10% + Workers Comp – up over 10% + EPL – up 5% to 10% + Professional – flat to up 5% + Property

z Capacity in the Marketplace + Market + It capacity is near all-time highs was a good year for investment income + It was an excellent year from underwriting loss ratio standpoint for most companies + What does this mean for you? It should stay competitive in the marketplace for accounts with good loss ratios, active safety programs, and have solid financials

z New Risk + Coverage Issues + Cyber Liability and Crime + Fiduciary Liability + Employment Practices – Wage and Hour + Professional Liability + D&O/Entity Coverage


z General Contractors Bond Claims: How to Make Them + How to Avoid Them Presented by Don Gregory and Jack Kehl Kegler Brown Hill + Ritter Overmyer Hall Associates February 26, 2014

z Should a Bond Be Provided? Factors To Consider + Is it a specialty subcontractor difficult to replace? + Is it a subcontractor that will drive the schedule? it a subcontractor who you have not “qualified” or shows “red flags”? + Is + Is it a subcontractor with a contract value greater than 50% of the firm’s equity?

z What Bond Forms to Use? Performance – Mandated by Owner (Owner) Must be responsive Performance – Industry form (AIA, ConsensusDOCS, etc.) (Sub) or Use your own

z When Should You Notify Surety for Sub? + DEFAULT + Failure to pay bills + Failure to follow schedule + CONSTRUCTION + WARRANTY DEFECT CLAIM

z How Do You Make Claim? Letter with Documentation Legal Action after 60 Days

z What Must a Sub/Supplier Do To Assert Payment Bond Claim? 1. If labor/material ˃ $30,000; and 2. No contract with GC MUST SERVE A NOTICE OF FURNISHING

z What To Do When a Payment Bond Claim is Threatened? + Investigate Payment with Lower Tiers + Communicate with your Surety + Seek out Documentation Downstream

z What To Do When the First Warning Signs Occur? Give preliminary notice of default/termination IN WRITING. 2. Verify payment status of all subs/suppliers regardless of tier. 3. Consider joint checks or direct payment for lien/bond waivers and backcharge the sub. 4. Set in motion a plan to take over the work if necessary. 1.

z Benefits of Proper Affidavits + Lien/Bond Waivers

z Final Release + Waiver

z How Do You See That Lower Tier Trades/Suppliers Get Paid? + Joint checks are best + Can make sole check if NOF received + Due diligence to avoid overpaying + Always + Seek insist on lien/bond waiver from lower tiers affidavit from your sub + Never forget about laborers

z What To Do When a Performance Bond Claim is Threatened? + Communication – no surprises + Has there been a “default” – read the Contract + Get the right construction attorney involved

z Performance Bonds – How to Avoid a Claim Perform Document Communicate

z Questions?

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