Category Archives: Bond Management

Nov 21 2013
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Bond Management

Making Sense of Bonds

In the world of insurance and financial products, surety bonds play a crucial role in helping you avoid a financial loss. Since the 19th century when bonds were first introduced, thousands of Contract-Surety-Bond1bond types have emerged. Like insurance, bonds are a legal contract which binds parties together and guarantee compensation if the purchaser fails in their duties.

The Principal (Obligor)

The individual or business that purchases the bond is known as the principal (also known as the obligor). You may be required to buy a bond for several reasons. If you’re a general contractor, you may need to provide a bid bond to a client, assuring them that your bid was placed in good faith. Or, a janitorial company may ask for an employee theft bond as a condition of hiring.

The Obligee

The obligee is the third party to whom the money is owed. For example, you may hire a contractor to complete work on your home and require that they provide a performance bond to ensure the contract is completed in accordance with the agreed terms. If the contractor fails to meet the terms, the bond would pay your loss up to the limit of the bond.

The Surety

The surety is the entity who promises to pay the obligee should the principal fail to meet their obligations. While the surety is usually an insurance company, it may be a bond company or a bank. Because bonds are meant to prevent a loss, the underwriting process is different than a traditional insurance policy and in lieu of a premium, a fee is collected.

Licensed, Bonded, and Insured

In advertisements, you’ve probably heard the phrase “licensed, bonded, and insured”. Professionals like contractors, tax collectors and notaries are licensed to show that they have passed required exams or met special requirements which provide a level of professional trust. These professionals, while their intentions may be honest, may default on a promise to provide a service. For this reason most states require that they are licensed, carry a bond and are insured as conditions for obtaining a business license.

 

Promises Made Daily

For every promise made, for every doubt you may have about a business relationship, there is a surety bond. With thousands of bonds to choose from, many are completely unique to the situation. An electrician may need a permit bond, ensuring that work will comply with local codes or a public official bond guaranteeing that the tax collector will perform their duties to the public. You may even be required to purchase a bond as part of your rental agreement on a home or apartment in lieu of a cleaning deposit. For any situation that requires a promise from one party to another, there is a type of bond to fit that need.

Need More Business Advice? Click Here

 

James Russell is a risk advisor for NewFIrst Insurors, specializing in the development of risk management strategies for the oil and gas industry, construction operations, and offshore risks.

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Jul 01 2013
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Bond Management, Business Insurance, Employee Benefits, Health Insurance, Risk Management

How Does Risk Management Create Value?

Risk management isn’t just a defensive tactic designed merely to keep something bad from happening. Effective risk management can also be constructive and encourage the creation of something positive. This positivity is a culture of value and self-awareness.

How to create value with risk management

Risk management doesn’t have to be a secondary addition to your business strategy, it can be incorporated into your overall business plan to give you direction and help you make the best decisions.

Balancing risk avoidance activities and responsibilities throughout the company makes it so that everyone is aware of what the risks are and how they are to approach them. Rather than a strategy dictated from up above, risk management becomes more of an open discussion that includes input from multiple areas. Not only is a fully comprehensive view of risk management at work in a company, it’s all-inclusive for management and employees alike.

Risk management allows for risks to become opportunities

Executives and board members are likely to have a much longer list of worries than their average employee would. Especially in the digital information age and with the popularity of social media for example, reputational risk is of real concern to many companies

Managing these types of risks, risks that have many variables, as part of your business strategy allows for large scale projects such as social media monitoring to be broken down into smaller manageable tasks and spread throughout the company. Employees can become more involved in the company’s risk management. It also potentially makes for more effective risk management if employees are encouraged to make suggestions for improvement or development.

Risk management best practice

To best understand how your risk management can bring value to your business, you need to understand how these risks can affect you. Generally they fall into four areas – strategic, operational, financial and compliance. How would your business plan get thrown off? What would loosing the use of a key piece of machinery mean to business? Often times the answers will come from those who would be directly affected by these risks, frontline staff.

Proactively managing these risks not only gives management, but all members of staff piece of mind that risks have been comprehensively assessed.

The value risk management creates can be viewed in many ways. It’s including employees of every level in the protection and management of the company. It’s tying business strategy with risks avoidance and management for efficient planning and strategizing. It’s creating opportunities for everyone to get involved and strengthening the company’s defenses against risk.

If you have risk management questions, click here to ask an expert

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Mar 25 2013
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Bond Management, Risk Management

The Value of Surety Bonds

The way project owners evaluate and manage risks on construction projects and make fiscally responsible decisions to ensure timely project completion are crucial to their success. Since private owners cannot afford to gamble on a contractor whose reliability is uncertain or who could end up bankrupt halfway through the job, a surety bond is a great safety net for the investment.

What is Suretyship?

Suretyship is a very specialized line of insurance that is created whenever one party guarantees performance of an obligation by another party.

What is a Surety Bond?

A surety bond is a written agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal.

Types of Surety Bonds

 1.     Contract (or Corporate) Surety Bond

The contract (or corporate) surety bond provides financial security and construction assurance for building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and compensate certain subcontractors, laborers and material suppliers, as outlined via their contract. Contract surety bonds include:

  • Bid bonds provide financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds
  • Performance bonds protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
  • Payment bonds guarantee that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project.
  • Maintenance bonds guarantee against defective workmanship or materials for a specified period.
  • Subdivision bonds make guarantees to cities, counties or states that the principal will finance and construct certain improvements such as streets, sidewalks, curbs, gutters, sewers and drainage systems.

2.     Commercial Surety Bond

Commercial surety bonds guarantee performance by the principal of the obligation or undertaking described in the bond. Commercial surety bonds include:

  • License and permit bonds are required by state law or local regulations in order to obtain a license or permit to engage in a particular business (contractors, motor vehicle dealers, securities dealers, employment agencies, health spas, grain warehouses, liquor and sales tax).
  • Judicial and probate bonds, also referred to as fiduciary bonds, secure the performance on a fiduciaries’ duties and compliance with court orders (administrators, executors, guardians, trustees of a will, liquidators, receivers and masters). Judicial proceedings court bonds include injunction, appeal, indemnity to sheriff, mechanic’s lien, attachment, replevin and admiralty.
  • Public official bonds guarantee the performance of duty by a public official, (treasurers, tax collectors, sheriffs, judges, court clerks and notaries).
  • Federal (non-contract) bonds are required by the federal government (Medicare and Medicaid providers, customs, immigrants, excise and alcoholic beverage).
  • Miscellaneous bonds include lost securities, lease, guarantee payment of utility bills, guarantee employer contributions for union fringe benefits and workers’ compensation for self-insurers.

Who Are the Three Parties That Make Up the Surety Agreement?

  • The principal is the party that undertakes the obligation.
  • The surety company guarantees the obligation will be performed.
  • The obligee is the party who receives the benefit of the bond.

How is Suretyship Similar to Other Forms of Insurance?

  • State insurance commissioners regulate both.
  • They both provide a safety net for financial loss

How is Suretyship Different?

  • In traditional insurance, the risk is transferred to the insurance company. However, in a suretyship, the risk remains with the principal and the protection of the bond is designated for the obligee.
  • In traditional insurance, the insurance company assumes that part of the premium for the policy will be paid out in losses. Yet, in true suretyship, the premiums paid are “service fees” charged for the use of the surety company’s financial backing and guarantee.
  • In underwriting traditional insurance products, the goal is to “spread the risk,” while in a suretyship, surety professionals view their underwriting as a form of credit. Therefore, the emphasis is on the pre-qualification and selection process.

Government Regulations

Since 1893, the U. S. Government has required contractors on federal public works contracts to obtain surety bonds to guarantee that they will perform such contracts and pay certain labor and material bills. The current federal law on federal public works is known as the Miller Act. It requires performance and payment bonds for all public work contracts in excess of $100,000 and payment protection, with payment bonds the preferred method, for contracts in excess of $25,000. Almost all 50 states, the District of Columbia, Puerto Rico and most local jurisdictions have enacted similar legislation requiring surety bonds on public works as well. These are generally referred to as “Little Miller Acts.”

While surety bonds are mandated by law on public works projects to protect taxpayer dollars, the use of surety bonds on privately-owned construction projects is at the owner’s discretion. Alternative forms of financial security, such as letters of credit and self-insurance, don’t guarantee performance or payment protection of a surety bond or assure that a contractor is competent.

With a surety bond, the risks of project completion are shifted from the owner to the surety company. For that reason, many private owners require surety bonds from their contractors to protect their company and shareholders from the enormous cost of contractor failure. Subcontractors may be required to obtain bonds to help the prime contractor manage risk, particularly if the subcontractor is completing a significant part of the job or is a specialized contractor who is difficult to replace.

How Do Contractors Obtain a Surety Bond?

Surety bonds are issued through agents and brokers who are knowledgeable about the surety and construction industries. Surety bond agents and brokers usually work for companies that specialize in surety bonds or in insurance agencies that have a sub-specialty in surety bonds.

The professional surety bond agent or broker usually maintains a business relationship with several surety companies, which enables them to match a contractor with an appropriate surety company. Also, a solid surety company and producer will help a contractor maintain and increase its capacity.

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Mar 14 2013
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Bond Management, Employee Benefits, Health Insurance

Filing Whistleblower Complaints Under the Affordable Care Act

Some very interesting information provided in a recent legislative brief from Texas Associates Insurors…

The Affordable Care Act (ACA) includes whistleblower protections for employees. Employees are protected from retaliation for reporting alleged violations of Title I of the ACA. Employees are also protected from retaliation for receiving a federal health insurance income tax credit or a cost-sharing reduction when enrolling in a qualified health plan.

The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) published an interim final rule in the Federal Register that governs whistleblower complaints filed under Section 1558 of the ACA. The rule was effective on Feb. 27, 2013. Comments may be submitted until April 29, 2013.

SUMMARY

The ACA contains various provisions to make health insurance more affordable and accountable to consumers. To further these goals, the ACA’s section 1558 provides protection to employees against retaliation by an employer for reporting alleged violations of Title I of the Act or for receiving a health insurance tax credit or cost-sharing reductions as a result of participating in a Health Insurance Exchange or Marketplace.

Title I includes a range of insurance company accountability requirements, such as the prohibition of lifetime limits on coverage or exclusions due to pre-existing conditions. Title I also includes requirements for certain employers. Many of the provisions in Title I are not effective until 2014.

COVERED EMPLOYERS AND EMPLOYEES

The definitions “employer” and “employee” under this whistleblower provision are found in the Fair Labor Standards Act. Therefore, this provision prohibits retaliation by private and public sector employers.

PROTECTED ACTIVITY

An employer may not discharge or in any manner retaliate against an employee because he or she:

  • Provided information relating to any violation of Title I of the ACA, or any act that he or she reasonably believed to be a violation of Title I of the ACA to the employer, the federal government or a state’s attorney general;
  • Testified, assisted or participated in a proceeding concerning a violation of Title I of the ACA, (or is about to do so); or
  • Objected to, or refused to participate in, any activity that he or she reasonably believed to be in violation of Title I of the ACA.

In addition, an employer may not discharge or in any manner retaliate against an employee because he or she received a credit under section 36B of the Internal Revenue Code of 1986 or a cost-sharing reduction under section 1402 of the ACA for health coverage purchased through an Affordable Health Insurance Exchange (also known as a Health Insurance Marketplace).

If an employer takes retaliatory action against an employee because he or she engaged in any of these protected activities, the employee can file a complaint with OSHA.

UNFAVORABLE EMPLOYMENT ACTIONS

An employer may not take unfavorable employment action against an employee based on the employee’s protected activity. Specifically, an employer may be found to have violated the ACA if the employee’s protected activity was a contributing factor in the employer’s decision to take unfavorable employment action against the employee.

Unfavorable employment actions may include:

  • Firing or laying off;
  • Blacklisting;
  • Demoting;
  • Denying overtime or promotion;
  • Disciplining;
  • Denying benefits;
  • Failure to hire or rehire;
  • Intimidation;
  • Making threats;
  • Reassignment affecting prospects for promotion; and
  • Reducing pay or hours of work.

DEADLINE FOR FILING COMPLAINTS

Retaliation complaints must be filed within 180 days after an alleged violation of the ACA occurs. An employee who believes that he or she has been retaliated against in violation of the ACA may file a complaint with OSHA. An employee’s representative may also file a complaint on the employee’s behalf.

HOW TO FILE AN ACA RETALIATION COMPLAINT

An employee can file an ACA complaint with OSHA by visiting or calling the local OSHA office or sending a written complaint to the closest OSHA regional or area office. Written complaints may be filed by facsimile, electronic communication, hand delivery during business hours, U.S. mail (confirmation services recommended) or other third-party commercial carrier.

The date of the postmark, facsimile, electronic communication, telephone call, hand delivery, delivery to a third-party commercial carrier or in-person filing at an OSHA office is considered the date filed. No particular form is required and complaints may be submitted in any language.

For OSHA area office contact information, please visit www.osha.gov/html/RAmap.html or call 1-800-321-OSHA (6742).

Upon receipt of a complaint, OSHA will first review it to determine whether there is a valid complaint allegation (for example, timeliness or coverage). Complaints are then investigated in accord with the statutory requirements.

RESULTS OF THE INVESTIGATION

If the evidence supports an employee’s claim of retaliation and a settlement cannot be reached, OSHA will issue an order requiring the employer to, as appropriate, reinstate the employee, pay back wages, restore benefits and provide other possible relief to make the employee whole.

OSHA’s findings and order become final within 30 days, unless they are appealed within that time period. After OSHA issues its findings and order, either party may request a full hearing before an administrative law judge of the Department of Labor. The administrative law judge’s decision and order may be appealed to the Department’s Administrative Review Board.

If a final agency order is not issued within 210 days from the date the employee’s complaint is filed or within 90 days after the employee receives OSHA findings, then the employee may file a complaint in the appropriate U. S. district court, with a copy provided to OSHA.

TO GET FURTHER INFORMATION

For a copy of the Affordable Care Act, the regulations (29 CFR 1984) and other information go to www.whistleblowers.gov.

For information on the Office of Administrative Law Judges procedures and case law research materials, go to www.oalj.dol.gov and click on the link for “Whistleblower.” For information on the Affordable Care Act, go to www.healthcare.gov.

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Feb 08 2013
1 Comment
Bond Management, Risk Management

What is ISNetworld?

More and more these days, my clients are asking for ISNetworld assistance.  Our agency has made ISNetworld support part of the risk reducing services we offer to our clients in the construction, manufacturing and oil and gas industries.  As the popularity of this service increases, I do receive questions from current and future clients about ISNetworld, including “What the heck is it?”

As the ever-evolving world of safety compliance presents new ideas every day, let me first just say…This is a great question! One I had myself not too long ago.  So here are some Frequently Asked Questions and Answers, direct from http://www.isnetworld.com.

  1. What is ISNetworld?  ISN provides an online contractor management database, ISNetworld. ISN collects health, safety, procurement, quality and regulatory information designed to meet governmental record keeping and Owner Client requirements. Through its Review and Verification Services (RAVS), ISN’s subject matter experts review and verify contractors’ self-reported information. Contractors also use ISNetworld to manage internal training and record keeping requirements. For more information, click here to watch a brief video about ISN.
  2. Are resources available to help customers?  Customers are provided with access to our Customer Service team at the following numbers below or by email at customerservice@isn.com.
    • Main Tel: 1 (214) 303-4900
    • North America: 1 (800) 976-1303
    • Australia: 1800 350 581
    • United Kingdom: 0800 028 8483
  3. Who can view my information in ISNetworld?  All subscribed Owner Clients can view your company’s information by default, while all subscribed Contractor Operators will need to request access. There are no additional fees to allow multiple Owner Clients to view your information. Click here for a comprehensive list of ISNetworld Owner Clients.
  4. What are the benefits of subscribing to ISNetworld?  Ensuring proper conformance and maintaining up-to-date information is essential.  Below are several examples of how ISNetworld can assist with your Owner Client’s reporting requirements.
    • Efficient and standardized way to meet Owner Client requirements
    • Improve internal safety and information systems
      • Written safety programs are audited by safety professionals
      • Track individual level data
        • Ability to track individual training and qualifications
      • Manage company personnel
    • Marketing and exposure to Owner Clients
  5. Is ISNetworld a secure database to store my information?  ISN has industry standard security measures in place to protect the loss, misuse and alteration of user information under our control. ISNetworld is password protected; allowing only authorized users access to the site. Unless specified by the user, Owner Client information is not shared with other Owner Clients and contractor information is not shared with other contractors. Contractors who have supplied information have the ability to restrict the access of Owner Clients to view the information. Click here to view the ISNetworld Privacy Policy.

Subscription Information

  1. How much does a subscription cost?  Contractor companies pay an annual subscription fee based on the number of employees. Employee count is based on the 3-year average number of employees.  Multi-division contractors/suppliers qualify for a hierarchy subscription. Click here for Contractor/Supplier subscription pricing.
  2. How do I become a member of ISNetworld?  Click here to provide your company information and our staff will contact you.
  3. Is there a benefit if my company has multiple subscriptions?  Yes, companies with multiple subscriptions have the option of setting up a hierarchy structure which establishes a relationship between multiple accounts within ISNetworld. A hierarchy structure consists of a primary account and subsidiary accounts.Benefits of a hierarchy subscription include:
    • Allow Owner Clients to view association between the primary and subsidiary accounts
    • Ability to replicate information from the primary account to subsidiary accounts
    • Promotes consistency in information gathering within multi-divisional organizations
    • Adjusted pricing structure for subsidiary accounts
    • Reporting injury rates/frequencies by division versus aggregate

     

Owner Client Requirements

  1. Does the questionnaire within ISNetworld satisfy the questionnaire requirements for Owner Clients using ISNetworld?  Yes, the Management System Questionnaire (MSQ) is a standardized questionnaire used by ISNetworld Owner Clients.  Once your company has completed all required portions of the MSQ, this will satisfy the questionnaire requirements for all connected Owner Clients.  Your company will complete this questionnaire once in its entirety and provide quarterly updates as required by Owner Clients.
  2. Is a hard copy of the questionnaire available?  The questionnaire is available online within your company’s account. This will ensure Owner Clients have access to the most up-to-date company information.
  3. What types of documents are submitted in ISNetworld?  The documentation may differ based on the Owner Client’s requirements.  Documents which are submitted for review in ISNetworld may include:
    • Insurance Certificates
      • Owner Clients provide their insurance requirements to ISN so their specific requirements can be configured within ISNetworld.
      • ISN reviews contractor’s certificates of insurance according to the review requirements of the Owner Client.
    • Written Safety Programs
      • ISNetworld RAVS will review your company’s written health and safety program for conformance with regulatory and/or Owner Client’s standards.
      • Your company will be required to submit copies of your company’s written health and safety program.
      • Detailed instructions will be communicated during your company’s subscription setup.
    • Owner Client Specific Documents
    • Training Documentation
    • Supplier Diversity Certificates

Your Texas Associates and NewFirst Risk Advisor can help you with the ins and outs of navigating ISNetworld and its RAVs.

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Feb 21 2011
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Bond Management, Health Insurance, Personal Risk Management, Risk Management

Defining What We do in a Tough Economy

In troubled economic times, there are things that business leaders find that they can depend on and things that they thought they could but, come to find out, they really can’t when it really counts.

 The business relationships that fall into the latter category are seemingly symbiotic in good times, but as the purse strings tighten, it becomes clear that the relationship was really one-sided all along with one, lone beneficiary.  In a recent meeting with a large contractor who was heavily impacted by our recent/current recession (depending on which half of the glass you choose), we received one of the greatest complements any professional can receive. Toward the end of our Strategy Meeting, I was wrapping things up after one of the most optimistic and productive meetings with this client in recent memory. I could tell that the owner wanted to say something, but was having reservations. I asked, “Is there anything else we need to cover?”

 In an uncharacteristic emotional tone, my client told me, “We have been through hell these past 18 months and we are back on our feet. We were down and everyone we did business with was kicking us…but not you. You helped us. You and your company gave us ideas that kept money in our pockets and even sent us a couple of jobs to go after. Y’all actually gave a damn about us. Thank you.”

I graciously accepted his remarks.  On the way back to the office I thought about how satisfying it was to provide the level of service I envisioned for this client. I was proud of what my team had done for this client and the client based processes we have in place for each of our clients.  It was another very tangible indication that our process works, and more importantly, the process works when it is most critical.

What we do at Texas Associates Insurors/NewFirst Insurors is always rewarding. However, seldom is our mission so plainly vocalized.

 Thank you for letting us partner with your business.  It is truly an honor to serve as one of your trusted advisors.

Jan 18 2011
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Bond Management

Bonding 101 Basics

There are a lot of misconceptions about bonding. Getting bonded is really more like a banking product than an insurance product. Insurance is a 2-party agreement while bonding is a 3-party agreement. Therefore getting bonded can be pretty cumbersome for the first time, but once you get approved and know your limits it’s well worth the process! First of all, you will need to get together a few items.

• A General Bonding Application – This can be obtained from your agent just to gather basic information.
• Company Financial Statements – The latest fiscal year-end statements and current interim statement if over six months old.
• Personal Financial Statements – All owners and spouses must provide a personal financial statement.
• Resumes on All Owners– The bond underwriters like to get a reference of experience for all owners.

Once they have these items completed, your agent will be able to move forward in order to get approval for the bond project. Your agent can then submit these to the bond underwriter for approval.

A Work in Progress Statement or a “WIP” is another great tool that the underwriter will like to look at. This tool shows all the work that has been completed, that is in progress, and also what is in your pipeline. This statement also shows a profit margin throughout the job. Underwriters like to see this because it shows how a contractor can plan correctly for a job, and how they are doing throughout the time of the job.

It never hurts to have an interview whether in person or over the phone, since bonding is granted on the 3 C’s :

• Capacity– Sufficient manpower, equipment, and back office support to complete the job.
• Capital– working capital and net worth sufficient for the work program or job.
• Character– Impeccable history of performance of all obligations as shown by the work and supply reference checks and reputation

After reviewing the applications the bond underwriter can judge someone’s character by references and a personal conversation.

These are just some of the basics of bonding, but again, the sooner you are able to get approved for a certain amount the easier it is for you to bid on future projects. If you need help sorting any of this information, call a professional risk advisor at Texas Associates Insurors.

Sep 07 2010
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Bond Management

Construction Bonding: Key to your Company’s Future

In the world of construction, a bond program is the lifeline to your income stream.  Without a surety willing to back your contracts, your company’s income stream can dry up.  Needless to say, having a bonding program in place is important.  But even more important is having a bond program that is progressing with the goals you have set for your company. 

As an active bonding agency, we see,  time and time again,  companies who are asking the same question, “How do we get to the next level?”  Well, there are many moving parts to the answer to  that question.  But the one underlying cause of being trapped in a stifling bond program is the same:

Your bond program has no goals. 

Unfortunately, the traditional approach to managing a bond program is basically “out-of-sight, out-of-mind.”  As long as the company can bond their next job and doesn’t make waves about advancing their single job or aggregate limits, the bonding agency is happy to let the relationship continue status quo.  The obvious problem with this is that you, the business owner, never achieve your goals.  Having a bond program that is only focused on writing a bond for the next job is like putting your company in a hamster wheel…you are running fast and keeping up, but you really aren’t getting where you want to go! 

At Texas Associates Insurors/NewFirst Insurors we employ a unique but simple approach to managing our clients’ Surety Relationships. Every company has its own set of  needs, and there are no “cookie cutter” solutions to reaching your goals in any  bond program. We realize the importance of providing our clients with a road map to get to where they want to go. You need real answers you can use so that you don’t find yourself at a dead-end.