Surety Bond News

The state of Virginia has updated the bond requirements for tobacco manufacturers. The new bill is titled SB 1268 and changes the bond requirement by having tobacco manufacturers calculate the bond amount by the highest amount of sales in a year. The old law calculated the bond amount using the previous year.

These days you have to be careful when selecting a company for all types of services, including surety bonds. There are companies out there illegally issuing bonds which can cost hard earned money and threaten the livelihood of your business; this is exactly what happened to a contractor in Virginia.

The Virginia State Corporation Commission Bureau of Insurance shut down a Virginia insurance agent and two companies while fining them a total of $280,000 for the fraudulent vending of surety bonds for public construction projects. President of Genesis Business Group Inc., Don Delwyn Tuzo was fined $115,000 including an additional $50,000 fine for another company of his named Genesis Capital; Virginia law authorizes regulators to enforce a fine of $5,000 for each offense. Genesis Business Group Inc. was acting as an insurance broker licensed to sell surety bonds while Tuzo’s other company, Genesis Capital, was acting as the surety issuing the bonds. Authorities stated that Genesis Capital provided bogus and deceptive information relating to the assets supposedly supporting the bonds. According to Tuzo, the illegal bonds were backed by land assets.

At a hearing in October, Larry Beadles testified that in 2009 Tuzo contacted B&R Construction Management Inc. offering to provide surety bonds for its state and local construction projects. Beadles said there were a total of five projects Tuzo sold bonds for.

The projects included:
• A $1,102,000 performance and payment bond to Portsmouth Redevelopment & Housing Authority for B&R’s work involving the Jeffry Wilson Housing Project.

• A $713,486 performance and payment bond to the City of Portsmouth in connection with B&R’s demolition of Hunt Mapp/Willett Hall for the City of Portsmouth, Va.

• A bid bond of $200,000, and performance and payment bonds of $373,000 for B&R’s construction of a K-9 facility for Virginia Beach, Va.

• A bid bond for $50,000, and performance and payment bonds for $732,616 in connection with B&R’s construction of a visitor center for the Virginia Department of Conservation and Recreation.

• A bid bond for $25,000 for B&R’s bid for the Jarmin Road/Crossways Boulevard site construction project in Chesapeake, Va.

This encounter with Genesis Business Group Inc. and Genesis Capital demonstrates how important it is to carefully look in to the surety company issuing your bond. Unfortunately B&R most likely won’t get the money back that has been lost with these bad bonds simply because there doesn’t seem to be any resources to support the bonds. Not only does the contractor lose money, they may also lose the job for which they had the bonds for in the first place. One of the main things you should research when considering a company is the surety’s financial strength since they will be the ones backing the bond. You can get a good idea of a company’s financial condition by looking at their rating from a nationally recognized rating service such as A.M. Best. Another important list to view is the Circular 570 Treasurer Listing which is the Department of the Treasury’s listing of approved sureties. This can provide some piece of mind that a company you are considering is qualified to issue or sell bonds.

Many companies are available when it comes to providing surety bonds. It’s important to weed out any potential frauds because it can cost not only money but the welfare of your business. Do the necessary research and you will be that much closer to obtaining a legitimate bond.

Virginia State legislators seem to be rather lax when it comes to public funds within their state. They recently proposed a new law that will heavily affect both the construction industry and taxpayer’s alike. The potential new law, which is named HB 1951 Public Procurement Act, boosts the minimum contract amount required for bid, performance, or payment bonds from $100,000 to $500,000. This means jobs that fall under $500,000 are not required to obtain a surety bond to guarantee their work; it’s risky business for both contractors and taxpayer’s.

When it comes to trying to rationalize the proposed bill, it does give previously unqualified contractor’s more opportunities to work on bigger jobs that formerly required a surety bond. But whose interest does that serve? Just because some contractors may not have been able to qualify for Performance Surety bonds doesn’t mean it’s a clever idea to raise the minimum contract amount so they have more chances to work on larger projects. There are reasons why certain contractors that weren’t underwritten by a bonding company didn’t qualify to attain a surety bond. I will agree that surety underwriting is rather conservative these days, but that only lends to an environment of financially sound contractors getting good public work.

HB 1951 is essentially lowering the bar to put contractors who have contracts under $500,000 free of having to post a surety bond; the bond as you might know, would guarantee the completion of the job while protecting public funds should a contractor default. Let’s remember, we as Americans pay taxes that run to the State and Federal level who end up paying these contractors on public jobs. The whole point of the bond is to guarantee the work being done on any given job. Let’s say a contractor does default on a project that was protected with a surety bond, the surety company backing the bond would pay out for the remainder of the uncompleted work so no one is stuck with a half completed building, stadium, parking garage, etc. This new enactment prevents the pay out from happening on contracts up to $499,999 simply by raising the minimum contract amount that requires a surety bond; that’s a large amount of taxpayer cash being gambled with.

Plain and simple, the point of a surety bond is to guarantee something. In this case, it’s to guarantee the success of a construction contract. The HB 1951 Public Procurement Act that changes the surety bond requirements threatens taxpayer’s dollars and future construction projects.

Motor vehicle title lenders in Virginia State are affected by a new bill which is referred to as SB 606. The new bill requires motor vehicle title lenders to acquire a surety bond in a quantity of $50,000 for each location, but cannot surpass $500,000. The surety bond is conditioned on the licensee executing all written agreements with borrowers correctly accounting for all funds accepted by the applicant or licensee in its licensed business; including cooperation with all pertinent legislation relating to operating their business. SB 606 authorizes direct actions on the surety bond, but the surety’s aggregate liability is restricted to the surety bond quantity.

SB 606 is a new law that was presented in Virginia State concerning motor vehicle title lenders. The new law requires motor vehicle title lenders to be licensed and to acquire a surety bond in the quantity of $50,000 for each location, but can not surpass $500,000. Initially, the bill would have required a surety bond in the quantity of $10,000 for each location, not to surpass $50,000; the bill was exchanged for a larger surety bond. The surety bond would be conditioned on the licensee executing all written agreements with borrowers or potential borrowers, properly and accurately accounting for all funds received by the applicant/licensee in its licensed business, and the cooperation with all related legislation in managing their business. The bill would authorize direct actions on the surety bond, but the surety’s aggregate liability would be restricted to the surety bond quantity.