Protection for Third Party Vendor Contracts

1. Protection for Third Party Vendor Contracts Surety Bonds For Public Entities

2. Why Bonds Are Required • Miller Act of 1935 • For federally funded public works projects over $150,000 • “Little Miller Acts” • For state & local public works projects

3. What is a Surety Bond? Principal (Vendor) Obligee (Public Entity) Surety (Guarantor)

4. Surety Bonds Vs. Traditional Insurance

5. Elements Of Prequalification Capital Capacity Character

6. Capital: Financial Strength Capital Financial statements Net Worth Cash Flow Indemnity

7. Capacity: Ability to Perform Capital Financial statements Working capital Net Worth Cash Flows Indemnity Capacity Resumes Contingency plan Business plan- short & long term

8. Character: References & Reputation Capital Financial statements Net Worth Cash Flows Indemnity Capacity Resumes Contingency plan Business plan- short & long term Equipment Character Reputation Relationships References

9. Role of the Underwriter • Review obligations • Determine the risk • Provide qualified principal to owner Underwriter

10. Underlying Agreement • Primary instrument to establish risk associated with the guarantee • Requirements contained in the contract documents

11. Functions of Surety Bonds • Competitive bidding process • “On time performance” • Saves tax dollars • Protects tax payer dollars Surety Bonds

12. The Advantages Of Surety Bonds • Qualified vendors • Competitive pricing • Timely contract performance • Quality product • Financial recourse • Insulates public officials • Efficient management of public works administration • Protect taxpayer dollars Surety Bonds

13. Surety vs. ILOC ILOCBond • Financial Prequalification Yes Yes • Capabilities Prequalification No Yes • Review of contract documents and guarantee forms No Yes • Guarantee completion No Yes • Warranty Period Covered No Yes • Cancellable Yes No/Yes • 100% Coverage No Yes • Impact on Bank Line Yes No

14. An Owner’s Guide To The Surety Claims Process(optional section)

15. When Problems Arise .... • Keep the surety informed of the principal’s progress • If principal defaults, submit written declaration of default • Allow the surety time to investigate the claim Obligee

16. Surety’s Responsibilities In a Claims Situation • Principal’s contractual obligations • Obligee’s contractual obligations • Principal’s defense • Whether the obligee has met its obligations Surety

17. Managing The Claims Process • Be cognizant of legal position • Avoid improperly worded letters • Written notice of known problems • Ask for a specific response Obligee

18. Surety Responsiveness • Be reasonable in your expectations • Be diligent in providing notice & maintaining records • Contact insurance commissioner Obligee

19. The Advantages Of Surety Bonds • Qualified vendors • Competitive pricing • Timely contract performance • Quality product • Financial recourse • Insulates public officials • Efficient management of public works administration • Protect taxpayer dollars Surety Bonds

20. Your Surety Professional Is Your Consultant Financial Security Qualified Principals