Subdivision bonds Part 1: What they are
Robert M. Overbey Jr., President
BondPro Inc.
Houston, TX

When a construction contractor - and for the purpose of this article, one that specializes in paving (concrete/asphalt, etc.) and utilities construction - is presented with bid specifications to either bid or negotiate a private construction contract for a new and/or ongoing development, it is arguable that in today's economy not many contractors will forgo said opportunity. It is prudent also for the contractor to confirm financing for this project by securing a funding set-aside letter from the developer's lending institution.

Contractual liability
Robert M. Overbey Jr., President
BondPro Inc.
Houston, TX

Regardless of what an insurance company adjuster or claims counsel may assert as respects the claim at hand and/or potential coverage, it is always advisable to review and assess the situation independently, and never relinquish your position or acquiesce to the decisions made at the company claims department or legal level until all avenues to confirm coverage have been exhausted.

Subguard versus surety bonding
Robert M. Overbey Jr., President
BondPro Inc.
Houston, TX

It is becoming more commonplace for large general contractors to consider implementing an insurance product known as Subguard in lieu of requiring the more traditionally accepted performance/ payment bonds from its subcontractors. (For example, the Arizona Cardinals new stadium in Arizona utilized Subguard rather than subcontract performance/payment bonds).

In general, the surety industry has rebounded from issues that had plagued numerous surety companies since 2000. The issues are well-known and are mentioned as follows for documentation purposes:

• Enron, K-Mart, and large construction losses throughout the U.S. resulted
  in reserves for surety losses exceeding 52.2 billion in 2001 and 2002. The loss ratio for the surety industry during this time was in excess of 79.2%.
• Due to losses, primary re-insurers were reduced by more than half. Sarbanes-Oxley restrictions have been implemented, and repercussions
  are now nominal as any perceived constraints are merely a way of doing business in the new millennium.
• As a result of these losses, the surety industry is somewhat averse to certain
  risks, including 1) financial guarantee bonds (without collateral); 2) start up construction operations; 3) some types of specialty contractors; 4) international risks.
• Conversely, the surety companies have, overall, realized a profit over the
  last 2 years, with loss ratios on the decline.