The Pennsylvania state legislature has spent considerable time over the last 2-3 years addressing issues in the construction industry. One of the more recent changes under consideration are amendments to the Pennsylvania Contractor and Subcontractor Payment Act. This statute, which is designed to ensure prompt payment on private projects in Pennsylvania, contains a number of provisions that are in need of update. At least one of the proposed changes will have a direct impact on the surety industry.
A primary complaint by many subcontractors is the length of time they have to wait to receive payment of their retainage. Those who complete their work towards the beginning of a project - for example, site contractors - are sometimes forced to wait months for the project to be completed in order to be paid retainage. On large projects, this can be many months; and depending on the value of the contract, the retainage can represent most or all of the subcontractors profit on the job. The legislature has decided to try to tackle this issue as part of its amendments.
The current proposal would insert surety companies directly into the breach. In effect, a subcontractor wishing to obtain release of its retainage before project completion would be permitted to do so if a maintenance bond is posted to protect the general contractor and owner for any possible defects in the work of that subcontractor. This, in theory, works because the maintenance bond replaces retainage as the security for defective work. In some circumstances, it might even provide more security by extending coverage for defective work beyond the completion of the punch list and offering security from a third party that warranty work will be done. For this reason, it is not hard to see owners and contractors beginning to mandate this solution in their contract documents.
This amendment has not yet been passed by the state legislature. There seems to be general consensus in the industry on most of the changes to the law at this point though, so it may only be a matter of timing. Once passed, the surety industry will have both a market opportunity and a new and unique potential risk to assess.
Army-Navy Cup, the annual battle between the soccer teams from Army and Navy, is now in its 5th year. Kaplin Stewart is proud to return as a sponsor for the event for a third consecutive year.
At Kaplin Stewart, we understand the importance of giving back to the community in which we live and work. No one does more for the American people than the members of the United States military who place themselves in harm's way to defend all the freedoms we hold dear. It is the selfless sacrifice of people like this that allows us to run a business in this great country and serve our clients.
Army Navy Cup has become an annual event hosted by the Philadelphia Union of Major League Soccer. The men's soccer programs at the U.S. Military Academy at West Point and the U.S. Naval Academy will square off on Friday, September 23rd, for the 5th installment of what is quickly becoming one of the best college soccer events in the country. We hope you will join us this year as we honor America and her military personnel in this very unique way. Match time is 7:00 p.m.
Surety contracts have become a signficnat part of the construction marketplace; and there is a plethora of law surrounding how they work. But can you guess the oldest known reference to suretyship in a written legal code?
No cheating by looking the answer up on Google. Offer your guesses in the comments section below. We'll provde the correct answer next week.
Disputes between entities involved in construction projects often involve a number of different companies with different roles on a project. These different roles, and resulting relationships, inevitably lead to different contracts with competing contractual provisions. For the unsuspecting, this can lead to a battle of forms that may create problems of disastrous proportions. A recent federal court opinion issued in Nevada illustrates the point.
In Western Surety Co. v. S3H, Inc., a project dispute arose between the general contractor and the subcontractor. The general contractor made a claim on the subcontractor's performance bond to complete the project. Thereafter, a private arbitration proceeding was initiated between the general contractor and the subcontractor to resolve the dispute between them. The surety then agreed to be joined in the arbitration proceeding and the parties executed a private arbitration agreement.
The private arbitration agreement contained a clause which made all the parties, including the surety, responsible for their own attorneys' fees and costs in litigating the arbitration. This clause was in direct conflict with the general indemnity agreement the surety entered with the subcontractor at a previous point in time. The GIA made, contrary to the arbitration agreement, the indemnitors responsible for the surety's fees and costs. The outcome? A $748,843.85 mistake.
Wishing all those who work so hard to help build this country and make her great a wonderful Labor Day. Thanks for all you do and for letting Kaplin Stewart be part of your great industry.
We are excited to announce that Josh Quinter, a partner in our construction practice group, will be speaking at MetalCon 2016. He will be presenting his program entitled "Documenting Your Project to Get Paid" on both October 26, 2016, and October 27, 2016, to a national audience of owners, contractors, subcontractors, and suppliers in the metal building industry.
MetalCon is an annual gathering of professionals in the metal building industry. It includes course and program offerings on a multitude of subjects, floor exhibits to introduce new technologies and ideas in the industry, and networking opportunities to meet some of the most experienced and knowledgeable people in the industry.
Josh has become a regular on the speaking circuit because of his unique ability to explain complex issues in simple terms and then provide practical applications for the information offered in his programs. He has been asked to speak on a wide range of topics from leadership to project management to various construction law issues. We are certain the attendees will find his most recent offering both enlightening and entertaining.
On the heels of our successful Spring Seminar Series, Kaplin Stewart's Construction Law Group is in the process of planning its next program offering. Our Fall Seminar Series will follow a similar set-up to our Spring Seminar Series and offer some great new topics. We will have another announcement in the near future with more details, but here are some of the particulars.
Week of September 12, 2016
Robert Korn and Kevan Hirsch will provide some valuable information on Mechanic's Lien Claims, including the soon to go into effect changes to that law.
Week of October 3, 2016
Andy Cohn and Sandy Feltes will share their insights on how insurance coverage works for construction defect claims.
Week of October 24, 2016
Bill Auxer and Karin Corbett will walk attendees through the OSHA citation process and how the administrative "court system" works when citations are challenged.
It should be another great series of programs full of a lot of new and useful information. We hope you will start making plans to come out and join us!
Although it's hardly a new product at this stage, the introduction of Subcontractor Default Insurance ("SDI") is much more recent than the use of surety bonds. Many of the very large general contractors are now using SDI because it allows them to control the claims process a bit more. These policies, while useful, should not be confused with surety bonds though. There are some important distinctions between the two that are worth noting.
The first difference between the two is that SDI does not guarantee completion of the work. When bonds are required on a project, the bond package often includes a performance bond. This type of surety bond is, as its name suggests, a promise by the surety to make sure the project work gets completed. An SDI policy will cover the damages caused by a defaulting subcontractor; but there is no component guaranteeing the project will be completed.
A second difference is that SDI usually comes with some sort of deductible. This is because it is, in the end, insurance. As such, it is written like a typical insurance policy with a similar claims structure. These deductibles can vary depending on the size of the policy, but they nonetheless exist. A surety bond has no such deductible.
For those who work in the world of construction sureties, General Agreements of Indemnity - or GIA's as they are called - are a normal part of the process. For those unaccustomed to how sureties operate and how they differ from insurance companies, they are as foreign as an unfamiliar language. Here's a quick primer on GIA's and how they work.
The first key to understanding General Agreements of Indemnity is to recognize that a surety bond is not insurance. In fact, in many respects it's nothing like it. Insurance is a premium based system that allows a company to prepay for liability risks in the event someone is hurt on a job or there is property damage. A surety bond is a wholly business transaction by which the surety is extending credit and/or vouching for its principal. To put it in perhaps slightly more simple terms, the surety is agreeing to co-sign for the contractor's financial viability.
With this in mind, sureties vet the companies to whom they issue bonds carefully. In essence, they want to know whether that principal has the wherewithal, financially and otherwise, to complete the project which is being bonded. Once they are satisfied that they can "vouch" for the principal/contractor they will typically issue the bond. Before doing so, the sureties typically ask the principal for something too though.