history of bonding

   

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  Virtually all public construction work in the United States is performed by private sector construction firms. These projects are generally awarded to the lowest responsible bidder. Surety bonds play a critical role in making this bidding system work.

There are three kinds of bonds generally used on these public works projects:

   

bonding services      
     

bonding terms      
     

history of bonding      
     

the miller act      
     

did you know?      
     

bid bond request form         The bid bond is intended to keep frivolous bidders out of the bidding process by assuring the project owner that the successful bidder will enter into the contract and provide the required performance and payment bonds.

The performance bond secures the contractor's promise to perform the contract in accordance with its terms and conditions at the agreed-upon price, and within the time allowed.

The payment bond protects certain laborers, material suppliers, and subcontractors against nonpayment. Since mechanic's liens cannot be placed against public property, the payment bond may be the only protection these claimants have.		      
             

performance & payment bond request form        
       

contractor's questionnaire            
           

construction links              
             
                       
                       
                       
                       
                       
                           
                           
                           

                                       
      In most cases, bid, performance, and payment bonds are required by law on public construction projects. These laws were enacted because about 100 years ago, the U. S. federal government became alarmed about the high failure rate among the private firms it was using to perform public construction projects. It discovered that the private contractors often were insolvent when the jobs were awarded, or became insolvent before the projects were finished. Accordingly, the government was frequently left with
unfinished projects, and the taxpayers were forced to cover the additional costs arising from the contractors' defaults.

Since government property is not subject to mechanic's liens, the laborers, material suppliers, and subcontractors were without remedy if they were not paid for their services. So, in 1894, the United States Congress passed the Heard Act to authorize the use of corporate surety bonds to secure privately performed federal construction contracts. In 1935, the Heard Act was replaced by The Miller Act, which is the current law in the U.S. requiring performance and payment bonds on federal construction projects.

There are only two alternative methods of performing public construction. The government may perform the contract with its own forces or retain a private contractor to perform the construction contract.

If the government uses private contractors, which ones should be chosen? Those who are solvent or those who are insolvent? Those who have the technical ability to perform the contract or those who don't? Those who will finish the contract on time and at the agreed upon price or those who won't? Those who will comply with the plans and specifications or those who will cheat? Those who follow safety procedures and operate a safe job site or those who cut corners? top of page.

The answers should be obvious. However, all contractors when seeking work will say that they are solvent, honorable, and qualified to perform the project. Of course, some may be stretching the truth.

Thus, the construction project owner would be foolish to hire any contractor who happens to walk in the door. Some prequalification screening of contractors obviously is necessary. The United States government elects to use the surety mechanism on construction projects in which it is the owner, so the surety assumes the prequalification responsibility and protects the government against loss when a bonded contractor defaults.

But why shouldn't the government prequalify its contractors using its own government employees?

Probably the most compelling reason is that whenever government officials are responsible for deciding which private contractors will be allowed to perform public projects, it is virtually impossible to prevent contractors from using political influence to obtain favorable decisions. When private surety companies are used to prequalify, the potential for using such influence is significantly eliminated.

In summary, the use of corporate surety bonds makes it possible for the government to use private contractors for public construction projects under a competitive bidding system where the work is awarded to the lowest responsive bidder. Political influence is not a factor, the government is protected against financial loss if the contractor defaults, and certain laborers, material suppliers, and subcontractors have a remedy if they are not paid -- all without consequence to the taxpayer. top of page.