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Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Current Surety Issues in Highway Construction
August 2, 2011
AASHTO
Subcommittee on Construction
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Agenda
• Financial report
• Current issues
• Questions
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Financial Report
• Lagging indicator
• Recovery – weak and slow
• GDP growth – nothing to write home about
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
GDP Growth
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Financial Report
• Lagging indicator
• Recovery – weak and slow
• GDP growth – nothing to write home about
• Consumer Confidence Index
• Unemployment – jobs, jobs, jobs
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Unemployment Rate
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Financial Report
• Lagging indicator• Recovery – weak and slow• GDP growth – nothing to write home about• Consumer Confidence Index• Unemployment – jobs, jobs, jobs• Tight budgets• Construction spending• Not out of the woods yet
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Financial Report - Surety
• 2009 loss ratio – 19%
• 2010 loss ratio – 13.2%
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Financial Report - Surety
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Where are all the losses – the wet blanket
• By no means a hot recovery
• Maintain discipline?
• Beware of the ramp up
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Surety Issues
• Waivers/threshold increases– Mentoring and technical assistance program– DOT/SFAA partnership– Bond Education Program
• Workshops
• Readiness
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Surety Issues
• Alternative procurement methods– PPP
• Bond requirements
• Size of bond
– Negotiated delivery
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Surety Issues
• Mega projects– Capacity to meet need has expanded.– Right project/right contractor– Require largest amount reasonably available
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Surety Issues• Long term warranties
– > 5 years– Certainty of judgment is reduced.– Reduced certainty = increased risk– Availability affected– Alternatives
• Reduce term of warranty
• Annual renewable bond
• Exclude from performance bond
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Surety Issues
• Onerous bond forms– Short response time– Terms that limit how a surety responds to a
defaults– Automatic increases to the penal sum
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Know Your Surety
• Surety is insurance.
• Oversight and regulation is critical.
• Beware of the fraudulent surety.
• Sources of information– SFAA– State insurance agency– Best
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Contact Information
• Robert J. Duke
• Director of Underwriting/Assistant Counsel
• The Surety & Fidelity Association of America
• 202-778-3630
Surety and Fidelity Bonds: Protecting consumers, taxpayers, and businesses.
Questions
