In surety we’re very familiar with bonding projects
involving construction, but sometimes we’re asked to provide surety support for
a contract that doesn’t involve actual construction. The obligation may
be for providing a service or product, such as
generators, lighting. Some sureties look at these as a commercial surety obligation and you’ll
need to work with a commercial surety underwriter. Here at Merchants
Bonding Company we consider it a contract
surety obligation so you’ll be working with your contract underwriter on these
submissions.
Non-construction performance obligations can often be
challenging since it can be hard to define what constitutes a default. Some contracts may outline specifics as to what is expected by the obligee,
while others will be quite vague. Both situations can be problematic, but
being able to define the expectations objectively
makes it is easier to assess the corresponding risk to the principal and the surety.
When reviewing these types of obligations we’ll look for a
copy of the contract and/or RFP. The review of these documents will be
similar to those for reviewing construction documents. The underwriter
will look to determine the scope of the product/services to be provided, what
constitutes a default, default termination provisions and any damage provisions
including liquidated, consequential and/or
actual damages. We’ll also look at the
duration of the obligation and renewal options, if any. Often
times the documents will include a copy of the bid and performance bonds that
will need to be reviewed as well and any onerous or objectionable provisions
identified and addressed. Lacking specific bid and/or performance bonds,
generic bond forms may need to be modified or new
forms manuscripted. While certainly not as common as performance and payment
obligations for construction projects, Merchants Bonding certainly has the
experience and knowledge to help our appointed agents in underwriting
non-construction types of risks.
Scott Bailey
Scott Bailey joined Merchants Bonding Company in 2008 and is the Contract Underwriting Manager, providing support and training for the Contract Underwriting Department. Scott is an active committee member of AGC of Iowa and Master Builders of Iowa.