A Study Of the Problem in
$119 188119 at Contract Band.

A {thesis Submitted to
me Faculty at
MICHIGAN STATE 0 0mm
OF

AGRIC ULTUHE AND APPLIED SCIENCE

.W
WQmBB-Xt”

Candidate for the Degree of Bachelor of Science

June, 1950

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Inasxs

so. a"

content!

Chap. I . erpoao or this mean

Chap. 11 - Chance. of Bonding Irresponsible Contractors

Chap. 111 - Agentl' Authority to 133m Bond.-

Ohap. I? - 133p“ and Rate: of Contract Bonds

Chap 0 Y - mo Fundamental Soundnou of the Present Bonding System

Chap. 11 - Substitutes for Contract Bond.

Chap. VII - £10 Bonding Company in Relation to the letting‘ of tho
Contract

Chap. 7111 - Oomtmtivo Work on the Part of Both Partial to tha Bani

Chap. 11 - Suggestions for the Aid of the Underwriter.

93873

Chapter 1
Purpose of This EEhesiI

m purpose of this thesis is to collect all available data and.
metiom that eonsern the writing of contract bonds, and from this date
attempt to point out the fallacies and weaknesses of the present system.
also keeping in mind that any system has room for improvanent and throng:
constructive thinking. outline any suggestions for improvement that seem
to have any‘reaeenable amount of usefulness behinc than. The present ey-
sten is woefully weak in m respects and. it is certain that any construe-
tire ark along these channels will be a. tremdous benefit to the public.

Chapter II

Chances of Bonding Irresponsible Contractors

flu presence of a bond upon a. contract cannot and does not
insure the awarding of contracts to parties who are responsible and
will contimzs to be so without respect to the bond. The causes and
reasons for default on a contract are so mmerous that an underwriter
would have to have superhmnan knowledge and skill to foresee all of
then. inexperience. incompetency. over-expansion. labor-unions, bad
weather and a. multitude of other difficulties. that can hardly be
foreseen by the underwriter, my cause default. It cannot be denied
that the surety agents issue bonds to contractors who later prove an-
worthy, but the practicel question is whether or not this occurs too
often or in too large a. proportion of cases end if so what are the
remedies for the situation.

Few people besides the umlerm'itors realize how thoroughly
and to what extent the applicants for contrmt bom‘is are investigated.
Besides the comprehensive form {-3 van to the applicant to 3111 out,
the bonding companies carry on inquiries with basics, mterinl men, amd
peoPls who the contractors have previously worked. for. At present
there are credit aneocietions in every city ergaiized for the purpose
of supplying just such information as say be needed. In Detroit the
zmteriel men have an organizations to which they send all bills for
material over thirty days old, and this association works hand-imhand
with the surety companies in an: effort to eliminate the irresponsible
and dishonest contractor. Cimnstances where the contractor does eon-

sidereble work and. applies continuously to the some agency for bond

m an elaborate investigation unnecessary at every application. is
e whole. underwriters carry on extraordinary investigations in regard to
the ability of the contractor to carry out that particular contract.

Even with all of the efforts made by the underwriters to estab—
lish the proof of bondability. it infrequently secure that the agent is
unable to obtain proof of the fitness of the contractor and he must write
the bond. It is quite evident that the surety cozzpanies would be widely
condemed if they wi thheld bonds from every contractor that could not far-
nish evidence beyond my possible doubt as to his ability to carry out the
contract. The simation is rather delicate in that certain parties charge
the scanty ccvgnnies with lemmas yet other contractors are continually
berating then for refusing to write certain bonds, that in the contractor‘s
vim are merited. i'ne best that can be done in many cases that are neither
good nor clearly bad, is for the underwriter obtain all of the available
information and. then decide what the wisest and fairest thing to do is.
There are no absolutely inflexible rules tint can be held to because of
the variety of conditions under which bonds are applied for. One company
holds that a contractor must have quick assets equal to fifteen percent
of the contractgyet in one case. they issued a bond to a contractor on e
$50,000 Job, here his assets amounted to $1600 dollars. me underwriter
met take into consideration the character. experience, industry, ability,
financial resources, facilities and new other factors if he is tsir to
the several parties affected. Sometimes the situation is si ple. while
in many cues fairness to the contractor. consideration of the owner, and
the safety of his own cosmany requires a. prolonged study and in the end
there is still some possible chance of failure.

It is essential that the surety comlnny obtain as much inform.-

tion as is available and if there were moreoooporation than is sometimes

shem by the other parties to the bond, conditions could be improved a
great deal. For magpie, many contractors do not aid the surety writer
at all, and oven at times try to conceal irriportant facts from then even
though they are reputable firms. 'lrncy all tend to apz‘aly to the agents
moss companies are not so insistent upon financial statements and other
similar matters. Ezghneers are often willing to give out information
that would be very helpful to the underwriter. Some material men who have
reasons of their own for desiring a contract to go through, will withhold
facts from the surety company. Similarly, bankers who are heavily in-
volved in contractors affairs Often desire a contract to go through for
their mm benefit. They are all merely tmating to fate in order to
m themselves more money, rather than the use of good business policies.
Luckily with the organization of these different interested parties, the
situation is rapidly becoming better.

It hardly needs saying that an underwriter would not bond a
contractor whom he had reason to believe irresponsible, althougfil some-
times an early default W68 it appear so. No oonxpamr could long remain
solvent if they were to issue bonds to irresiaonsible contractors. than
contractors who arenct worthy are bond, it is very likely that the agent
has been mislead by some mans or other. Very likely ti-c surety comxany
has been mislead by the financial statement of the principal. Sometimes,
as past experience has shown. contractors, who on the surface seem to
be successful and even have been very successful, turn out to be irres-
ponsible. more is the case of a large submy contractor who had done
some forty million dollars worth of subway work, and then taking some
ass contracts, failed, leaving several million dollars worth of work un-
finished. In building as in any industry there are cycles and unny ex-
perienced men get caught with a great deal of work on their hands in a

period of rising costs. iumsrous cases could be dug from the records of

of the surety companion.

It seem as though it would be foolhardy to bond inexperienced
contractors since even experienced men prove to be poor risk. so ethics.
but often there 19 no other altermtivc than to bond the inexperienced
applicant. Some com-mice have been e-xverely criticised. for giving barrio
but upon reflection one can see that it would never do for a bonding con-
paw to withhold all ourctyship from inexperienced contractors regardless
to other conditions. If the surety companies were to abide by such a.
narrow rule it certainly would work a maship upon contractors 8.110”. also
upon the beneficiaries of the bonds. It often happens that contractor:
without experience or with very little, must be bonded. by some one, or
the tor}: will not he done. Just such a. condition arose in Michigan month.
Groesbock administration adapted the extensive paving campala. There was
00 mzch work to be done that there were not enough contractors for the
Jobs. "7118 was capeuially true of." the aistricto a. little mutant from the
cities mere there were a. few experienced paving contractors. The state
ostebnn'nea a Elma; Departmnt with expert Engineers who drew speci-
ficativ-‘ne. The local contractors probebly have never built any roads
to such plane, but at least they are familiar with laLor and topoeptamical
conditions. Biddurl from away will come; they my have built roads to
'specificctlone as the capertmnt hands out to them, yet they are Weani-
uar with labor conditions and any particular local features and as a reo-
ult there are not available a. sufficient number of contractors who are
oucceestfully experienced in road wildfire; and who at the mm o time are
familiar wit local conditions. If t} 0 work is to be done, the cmpazw
has no recourse bit to bond. the inexperienced contractor. It 10 certain
that if bonds are refused the public would abulntely condemn the mm-
W companies as lacking in public Syll‘it and hindering valuable improve-

In“. As a $010 the companies have been fair and done the bonding;

Marina the lessee without complaint.

The determination of a contractor's fitness ac to experience
will for the kccneet and meet experienced tmderwritins Judmnt. If
curety'eampaniel were to adopt a faxt rule not to bend bidders unless
they had com-lewd successfully jobs of similar size and clmrecter,
then it would be even more difficult to get work completed'within the
tits allotted and when the apprcprietione are available.

In 1925 mre tlnn fiftg,r percent of the contractors who built
the existing enemya of Row Yer}: had failed or retired and a row ex:-
paneion program waste be carried Out. If the companies were to place
all bidders to rigid experience tests thewaould.never be able to qnal-
if: enough men to crzmplcte the work.

acnetruction costs have risen 150% in.the last 15 years and
during this period of increasing costs, the death rate of experienced
builder! has been.high. Ir it were not for the net'money and fresh
blood always flowing in, the ranke of the experienced contractors would
be sadly depleted. The surety companies make no apologies fcr‘writing

bonds for inexperienced contractors.

chapter 111

Ons cf the comment of criticisms made that agents are allowed
too much authority to issue bonds in accordance with their on W.
and that they do so because of the personal gain. This criticism is I th-
at grounds although it is easily seen how it is construed since mzw s-
gsnts like to givs the impression that they have great authority and to
mks the applicant feel that he is dealing tith canons of importance. it
is trus that somtimss agents have authority to bond certain contractors
without first referring to the home office, but they are particular part-
iss filers the surety company has been dealing with for year and in thq
know to be financially sound. lifheee misconceptions may be somewhat he
to the fact that the power of attorney issued by the surety oonpazw to
its agent is usually unlimited except in mount and is quite general as
to the obligations it may cover. In some states the authorities do not
even pensit a limit to the amount of the bonds that the agent my writs
' since the bond-approving officials could hardly be expected to examine
every bond and find out if the agent had the right to issue that type
of bond and to that amount. The surety companies do not intend that
the agents writs any kind of bond and to any amount by this broad power
or attorney. The comics mine it clear to the gents that the pass!
of attorney, as between the company and agent. gives the latter no au-
thority shatsver and they are to use the power only as instructed. In
all cases these instructions are very explicit and exacting and in prac-
tice the authority or the agent to issue bonds on their own discretion
is rigidly linitsd.

It is quite obvious that the companies must make some provisions
for the more rapid issue of bonds and to do this they often have a train-

ed bond man in the larger cities about the country. The delay which

Iould be caused by dammling; approval by the home Offices could not
be tolerated. These trained bond men have very few limitations upon
themlvel, but it can be plainly seen that they will not last long
on the Job if many bonds are defaulted. Any applications upon which
there in some doubt in their minds they refer it to the home office
for approval and hence the awplication is either accepted or rejected.
me agents in around. the designated district must refer to thin lpec-
ial bond men all applications for bonds for his approval} Sometime
agente are permitted to write bonds to the amount of “coo-$10000
without referring to the special repreeentative but in any case the
amount is exactly stated.

the pram.“ income of the curety ocmgnniee was $134,000,000
for 1928 and a large part of this comes from contract bonds written
to cover billions of dollars worth of work. mess enormous figuree
chew that there are thousands or agents the have a part in it and
it would be useless to lay that the underwriting authority has not
been abused sometime” It seems a miracle that the surety companies
have been able to heap the situation so well in hand. The carpetiticn
in the field er contract bonds has been the meanest but the congaaniee
are not eager for the business at the expense of safety and my sad
experiences have ehewn that contract bond writing cannot successfully
be left in the hands of the agents. Agents are not permitted to Tie-
late their underwriting authority and repeated instances or that na-
ture have owned Fulfilment even to the extent at forfeiture of their

agencies.

Chapter IV

Types and hates of Contract Bonds

Generally speaking there are three classifications of contract
bonds: supply contracts; construction contracts, Class A; and sonstrue-
tion contracts, Class B.

Supply contracts are simply contracts of purchase and sale with
no obligattcn to perform or construct, and no obligation to pay the con-
tractor's er vendor's debts for labor and material; or to pay for things
delivered. The rate for supply contracts is one quarter of one percent
of the contract price.

Construction contracts. Class A, include only work and labor
upon personal preperty. may do not include walk on land or water and a
number of other classifications like automatic telephone exchange equip-
ment, pipe lines. lock gates, mchinery made to the special order and de-
sign of the purchaser. etc. Rene of these contracts are merely contracts
of purchase and sale. All of them involve some kind of labor or work,
but not so mmh as building construction, 1. e. the contractor does not
undertake to build a‘bridge, er a pier, or a skyscraper, but he does under-
take to do something toward that end. The rate on.this type of bond is
three quarters of one percent of the contract price per year.

Construction.contracts class 3 includes erection.cr repair of
all buildings or work on land or water. All of the following cons under
this class: breakwaters. culverts, acqueducts. sewers. pipe lines, water
works, canals, ditches, dams. locks, piers. docks, wharves, wells. en-
cawatione, foundations, masonry, subways, tunnels, railroads, hi_hways,

public improvements and am; buildings.

The surety on these contractos guarantees performance of a

Contract of building construction and in addition to that under the
statutes of the Federal Govenment and in most of the States and under
the form of bond for private work adopted and standardized by the Am-
erican Institute cf Architects the surety also guarantees to pay all
contractors indebtedness for labor and mterial. On these contracts
most of the companies have standardised the construction period at
twenty-four months or less because from experience they find that the
hazard is practically the sane on a three months or six months contract
as on atm year. The rats is one and one half percent of the contract
price up to twenty-four months. ilhere is a movement new to reduce this
rate to one percent. but there is no definite developmnt in this direc-

‘1011 as 363s

Chapter 7

The Fundamental Sorndnese of the Present Bonding System

It seems that some peeple consider that a bond covering a
contract absolutely guarantees the pericrmame of the contract and if
the contract is not performed then the surety company has failed in its
responsibility to the public and is charged with inefficiency and poor
management. this situation of course is untrue and has not been thought
out because it is not legal nor consistent with the true conception of
suretyship. People me think this do not consider the similar case of
a fire insurance company when they write a policy. The company does
not guarantee that there till be no fire, but in the event of a fire,
they will repay the policy holder for the damage suffered. Similarly.
contract bonds do not guarantee absolutely that the contract will be per-
fond. Any one knows the contractors have always defaulted at times
and that no voters of bonding will absolutely eliminate any chance of
default. It is not logical for one to blame the bonding comm in de-
fault are more than to blame the fire insurance company in case of
fire. Yet this is done many times.

If a company becomes surety for a bank chashier. it does not
pledge its word and capital that the cashier will not steal. but in case A
he does steal. it till indemnify the bank for its loss. All bonds are
m. or less instrumnts of indemnity and contract bonds should be re-
garded as such. The beneficiary of a contract bond has the right to

expect imiemifioation. but not the performance of the contract necess-

arily. Generally. it happens. that the surety company steps in and fin-
ishes the work, since it is the easiest and best way of fulfilling its

monies to indemnify usually, but the conditions of the bond may be
satisfied if the surety company merely pays the beneficiary whatever
losses he incurrs because of the default.

A little history of suretyship may help to clear up this point
some. At first. no bonds of any kind were required and officials award-
ed contracts to whomever they wanted to. As could be expected, there
*eere thousands of dollars lost because of failure. There was always
a good deal of agitation after a loss, of course, and finally laws were
enacted requiring that the contracts be awarded to the lowest bidders
and that he should supply a bond for the faithful performnce of the
Job. There were no surety companies at the time, so a system of indiv-
iduals going bonds for their friends grew. Of course there were defaults
and suits on tsp of that and so about 1890 the first contract bonds were
smitten. lhss was a vast improvement over the old system, but the change
in the character of the sureties has not changed in am respect the ne-
ture of the‘whole transaction. Some discussions of contract bonds imply
that the surety companies assure additional obligations to those of the
contractor. lhis is false and out of keeping with the original Idea of
suretyship. Contract bonds did.nct Originally'ocver the payment of le-
ber and material bills as well as guaranteeing the performance of the con-
tract. They have been enlarged for greater convenience and safety of the
public, but they have not been.changed in essential character. Contract
bands are Just as they always‘have been, an agreement to indemnify for
losses caused.by the defaulting of the contractor.

Concract bonds are nonpoancellable financial guarantees, pro--
testing the owner from.a,pcssible increase in cost. They guarantee that
the contractor sill carry out his obligations and in a sense is a form

of credit, since it increases the contractor's financial strength. for

the benefit of the owner, by an amount equal to the pawl sum of the bond.

Some have the opinion that the surety companies try to evade Ii-
ther the letter or the spirit of their agreements with the public as is en-
bOdied in the bonds which they write, but. on the contrary, it seems that
they do their best to interpret the agreemnts in a broadminded my and
with fairness to all parties concerned. In most eases. the beneficiarie-
of the bonds are govermntal bodies, and the work is for public improvement,
80 that public sentiment (lemmas fair treatment fr0m the surety commute.-

The present day demnd for bonds necessitates the issuing or
bonds 1:1 great variety and to all classes of peeple and of course claim
of all kinds are being paid to the beneficiaries. These claims involve
huge sums of money. In 1924 the losses sustained by he sureties mounted
to $54,400,000 while in 1928 with a large increase in business, the eerie.—
ponding loss was only $32,500,000. 'i'his shows a great deal in the way at
improved underwriting. With these trezmmlous amounts of xhoney paid out,
there are still critics Who mintain that the sureties endeavor to dodge
their Obligations.

Even if the evidence Just referred to were not convincirg, it
would be hard to understand how any bonding comm could accomplish much
in the wrong direction, because of the rigid laws under which they must
Operate. The conqnnies first must be licensed by the state and then they
beam subject to all the laws passed by the state for the protection of
the bondholders. The states mintain insurance departments whose duty it
is to see that the companies abide by the laws. It is quite clear that the
surety companies could not evade the contract“

Peeple do not realize that the adjustment bond claims is not Inch
3 simple Job as the adjustment 01’ other insurance claim Claims accruing
tron Contract bonds quite obviously involve factors for more mimerons

than an ordinary fire claim under a fire insurance policy. Bonds are a.

three party instrument and the companies frequently find that when claim
are sleds. that they cannot meet the demands of one of the other in part-
ies Without violating the rights of the third party. In such cases the on-
ly safe course is to wait for a. judicial decision unless the parties can
com to some friendly agreement. The surety companies do not desire each
action and try to avert it whenever possible. (Em-rally speaking, the com-
pemios desire to pay claims promwtly and fairly. The companies attempt

to satisfy every requirement of the centract and to wet the expectations
of the bondholder, both as a matter of honest; in business and as a matter

of sound business volley in the pz-omtion of goodwill.

Ohepter VI
Substitutes for Contract Bonds

m surety companies are convinced that contract bonds serve a
most useful purpose and that as yet, there is no adequate substitute for
them. It is certainly true that personal sureties are not as safe nor as
convenient as corporate suretyship even thmagh the latter is still used
in loan W03! Bonding companies have fomd by experience that it
pays to anticipate trouble and to run toward it rather than to sit back
and let it find them. Ottm by bolstering up the contractor with t 11t-
tlo financial aid much larger losses have been averted. It certainly in
wiser to keep the Job moving than-to allow it to cease and then have to
reopen work at a later date. rho average personal surety does not have
the knowledge; organisation. or the ability to be able to mm the
imending trouble and thus avert e. tie-(:13. Even with all the shortcomings
of the surety comanies it is generally agreed by everyone. including mm-
ere that corporate euretyship is for superior to mrsonal snretyship.

the mggestion that has often been made. that contract bonds be
replaced by a deposit of negotiable securities with the owners. is hardly
plausible since there are for omitreotors with enough securities to ear-
ry out this plan. Such a deposit would certainly deprive the contractor
Of some forking capital and thus weaken his financial stability to com
degree. Such a deposit is really not additional security since with the
signing of the contract he has “ready pledged his fimncial resources.
he contract bond really increases the financial resources to the amount
or the bond and protects the ovum:- t‘rmn an increase in cost. Also it not
be remmbered, that is case of default. and the owner has such 9. deposit

of “with! he is accountable for every dollar used.

The owner or his attorney will have plenty of trouble trying to .
determine which claim to pm and which to reject. Everything that they do
is subject to the approval of the contractor and certainly he will not lie-asi-
itate to sue them if any funds are imprcperly used. "

Another suggestion has been made to increase the percentages with-
and mm the contractor, but this is subject to the same ebJections as was
the deposit of securities. It would certainly cripple the financial resources
of meat contractors.

A fourth suggestion is that contractors deposit a certified check
with the-owner but this certainly has the objection of crippling the resources
of the contractor and making the tumor liable for any funds expended in case
cf default.

A fifth, and the rest likely suggestion is not a substitute fa
contract bonds. but an aid to better: undersriting. the general idea of the
plan is a central investigation bureau maintained mid operated by all the
surety companies together. Ehis plan certainly would reduce the mmber of
losses by surety companies since it would then be practicable for such an
agency to molten a full staff of trained nan oapabls of analyzng each
application to the best extent of their knowledge. It would do away with
the inadlquatc forces of the comm-nice and centralize all investigations.
Each compaw would contribute to the Operating out according to the amount
of bonds written by the company. Such an organization would maintain offices
in any sections of the country and certainly this would speed up the issuing
of bonds without the tear of passing toe hasty mm.

the central bureau would certainly eliminate the doubtful contract.
in that he would be unable to obtain a bond unless (ran some outside wildcat

organization and public officials would never dare to let a contract under

such conditions.
or course there would necessarily have to be honest officials

operating the bureau. but in this day and age the crooked are not long coun-
tmanced in business. This seems to be the best and most logical inmrovement
yet suggested. who honest hard-erking contractor could certainly have no

chection end the unworthy one is the contractor so rim to eliminate.

Chapter VII
The Bonding Comm in Relation to the fitting

of the Contract

Private owners my, end Often (10, eliminate irresponsible" bidders
by Just not inviting them to bid upon a job. They have cons-lets control over
such situations and my eliminate them they please, for any or no reason at
all. Such is not so with the awarding of public contracts however. Public
officials have no such freedom as this; in fact, they are almost required by
leer to award the contract. after advertising for competitive bids. to the
'losest biddei“ or some smiles-lg designated applicant. Whose laws of course
are to protect the public from loss through corrupt officials who mag-ht wish
the contract awarded for political reasons. the feet that all of the contras-
tors furnish good substantial bends would not carry any weight in the 8381'.-
ing of the contracts. The officials should take “to consideration all other
factors became even the lowest monetary bidder my be able to furnish ample
proof of his bondsbility and. yet not be the proper one to carry out the con-
tract to the best interests of the public. law tians it has occurred, that
the lowest bidder is able to prove himself worthy of surety-ship yet it is
very clear to those whose understanding of the situation is good, that in
all likelihood his performance or the contract would be very unsatisfactory,
because, of inexperience. lack of equipment, or some other basic reason.

Of course, public sentiment often drives the officials to award cmtracts
share it is somtimes mice. but. nevertheless, the lowest bid should also
carry experience, financial reopensibillty. coral integrity. and general good
character with it. were have been numerous oases taken to court and in all
of them the court has defined lowest as to mean not the lowest monetary ti“
on necessarily, but the lowest responsible bidder with all things taken into

consideration.

Recently. several of the larger states, where elaborate him
programs are carried on, have begun to mice investigations of bidders, throng:
questionnaires. detailed financial statwnents, banking institutions, and other
mans. Ehis certainly is a valuable step in the rigit direction if carried
on extensivelv. The widespread use of uniform egerience questi onnairee an!
smh information which seems quite likely to become a. permanent feature of
the construction industry should certainly go a lone; ways toward the elimina-
tion of irmspmisible bidders.

. the surety companies as a whole certainly favor the using of dis-
oietim in awarding the contracts. 1’0 outsiders it may not be quite clear.
but underwriters can readily understand has under certMI conditions a con-
tract bond ntght reasonably be issued in favor of a contractor. to whom it
would be undesirable to word the contract. For an maple, a men of good
character or a concern of high standing applies for a bond, and it in ism
that their financial standing is the best, then a bonding company can hardly
withhold surctyship even if the sun or concern has very apparently bid too
little or for some other reason will not lihly be able to con-lets the con-
tract without a loss. Then the situation arises where a third. pnrtr has an
interest in the letting of the contract. och as a supply house and they are
willing- to finish collateral for a certain contractor. in return for surety-
ship for him. The question is more or less, could the surety senor-Hm, if
financially able to cover the indemnity, refuse to bond the contractor even
if the latter seemed to be lacking in some of the requirements? we surety
companies‘ primary function is indemnity and they would be severely criti-
01350. if they imbald bond from a responsible party just on the grounds that
they did not believe that the applicant should be bonded.

In plain words, the bonding companies would prefer to have pullio

officials use discretion in wedding contracts to the lowest bidders.

Chapter VIII
Ocnitructive Work on the Part of Both

Parties to the Bond

Both parties to the contract bond have been doing considerable work
tomrd improving conditions; the omitructors, timing}: the Allied General Gon-
tractorl Association; and the bonding; companies through the Sumty Association
of Americas

The Allied Gemrul Contractors have mde the following recomnendatims

1. flat public officials prohibit the use of certified checks furnished or
guaranteed by a surety corp-any or its agent. .

3e flint public officials eliminate the use of bid bonds in the letting of
contracts and substitute certified checks, or negotiable securities. If,

however. checks or negotiable securities are accepted. it will not do to re-

. quire them to have “Burstiu' Consent" or ”Bidding Letters“ because that
would merely reproduce the bid bond situations Surety companies give eon-
nuts and sign letters Whigs gained by the elimination of bid bonds

would be lost.
3. em all cmserned with contract bonds use unifonn questionnaires cover--

ing the skill. integrity, and reponsibility of the contractors.

4. Est lass be passed making it criminal for public officials. in any say
concerned with the letting of contracts. to be pecuniarily interested in the
plming e: boule-

5. That contracts include a clause providing for a. board of arbitration to
take care of my disputes arising during the life of the contract.

6. 5313.1; the surety companies stop their agents from giving “free service"

to bidders prior to the filing of the bond.

m lurety companies have done some work in an attempt to better
the situation, mainly along the line of associations to eliminate the true-
poneible bidder. In many or the larger oitiee local surety agents have sue-
dated and are cooperating with contractors associations or with the am-
Tidnal contractors in an effort to eliminate the bad practice- prevalent
in the writing of bonds.

the Surety Association has a contrast bond committee which in Me
up at one representative from each nember omnpany. The committee meets tre-
qnently and is at present concentrating its efforts in an attempt to clin-
inate the use of bid bonds, but because of statutory remix-omen“ and rule-
. or contract mum-ding authorities, it seem that bid bond: will eonflnne to
names the construction industry.‘tmleu sane legal action can be taken to
eliminate them. The Association is absolutely in favor of abolition ot
the bid bond.

the Surety Associat inn has created a ooumittee on better underwri-
ting. this eomitteo has made an exhaustive study of the prsotiou or the
different ewpanies in underwriting and has made a eomprehensivo report
wish can hardly tail to aid the underwriters to some extent.

me Association also has a Joint conference oomittee, that works
with a similar group representing the £11in Contractors. or with

any other such group as has been termed.

Chapter m

Motion! for the aid of the Dina-writer

It seem to be that the general opinion is that the reaponsibility
tor the loss in the mjerity of cases can be blamed on both the surety cem-
paniee and the contractors. it is certain timt the surety companies cannot

properly underwrite their business unless contractors give than complete
informticn. A bank statemnt showing all available credit and on that
term it is extended is very important. All work Inner constriction should
be listed with its location and state of completion. The war}: to be bonded
should be fully described, and information as to the mesa and amounts

of ether bidders. the location of the Job, the mintemnce provisions. the
cub-contractors together with information as to feather they will be bonded
and memo:- the deb has any unusually hazardous features about it. Sam
firther wage ‘tions that have been offered as an aid to the mtg congenial
are:

L111! the surety comrmalec plentg or time to handle the application.
because in a lalt minute rush the surety cosmic: rear deception and. will
often withhold a bond because if it. A large bond also requires reinsurance
which is not always immediately available.

In time of pro-perity, when business in boom, avoid "or m
lion and do net bid upon more work thzm the net quick meets or your erm-
llation mte. Over extension has probably caused more leaneeand fail.-
me thanamether singleemco Be lureyouknavhowyouare 3'01an
finance the work before accepting the Job.

Be careful of contracts that are payable in anything except each.
new easel can be “tad more the contractor! were paid or: in bonds or

Ion! other form of paper and when file contractor came to 6.1th the m

Inch 3 high rate was “mauled that the contractors suffered heavy lose“.

Do not sublet work: to other contractors unless they can furnish bond
and especially so if the sub-contractor is financially week. It is best
not to deal with sub-contractors it there is any doubt no to his ability
to do the work at a reaeouable profit to himself.

Do not be at all Dacia-yard about taking; the surety 00:11me into your
confidence and let them advise you. The surety companion are core interest-
ed in the success of a contract than in its failure since success moaxzs pro-
tit and failure mans loee to them

Do not invest any surplus capital in speculative securities because
in a pinch they withave to be mericeted at a lone. Alec the integrity a
business sense of a tan is judged moi: by the investments he makes.

Above all do not file complimentary bide because they will likely
be mach too high and may mine it difficult for the lo!P bidder to obtain a
bond. Do not bid upon 8 Job unless you went the Job.

Some fin-timer points that would. be 1161me it carried. out by engine."
are as follow"

Send the surety company a copy of each payment oetimte and keep than
notified at all time an to the prowess of the work.

If default in threatening notify the surety company and they m
be able to aid in preventing it.

Try not to award or plan more work than can reasonably be upeoted
to be done with the labor and mterial available. This is especially true
of highmy building where outside contractor: come in to do name of the work-
!his situation is liable to ran up costs because of the competition for 13-
her and miterialo

Be more to describe the work in the official propelelu no that the

contractor can readily tell whether he has the experience, organization,

and. capital to carry out the Job.

Rave as for alternator: as possible in the bids because there 1-
bond to be some: question urine about them.

Do not attmpt to mks the contract bond Cover tqulfimnt bill. b0-
cause equigjgmnt does not form part of the finished Job and it is unjust to
the Surety to expect them to be 15.35019 for any 9mm items.

DO W With "bid. homo" and”8urety consents" and wflm contractor!
311;)ka certified checks 0

Be sure and 11113115}; the m (If the surety oompmzy writing the bond
for a. contract because it will soon expose any political combine that in at-
tcmptlng to monopollm the 132131110“. It W111 also bring to 11.35121; any contin-
1194 la: Morn-lung and the bonding of unworthy contractors.

Ham; contraotora' {film can be laid at the foot of unscrupulous

0

material men or lupyly houses. East states protect them with lien law #1101:
mice the My comm; liable for pmt of all materials used 60 the m-
terlal men have only to see that the contractors obtains his bond. It in a
wine policy for my undomitor to Waugh]: investigate a contractor who
any lupply house is particularly salon: to have bondui.

In conclusion. it some that the met: or failure of the whole Ii.-

uation depend: min): upon faith and goodwill of all pan-“t5.“ 6011661716de

mum

Property Insurance

Solomon 8. Elohim:
Corporato Surety Bonding

J. Frank Suppl...
Lectures on Insuranoo

The Weekly mu: Bibliaher
Why and Surety Coverages

William H. Baton; am late- Ooo. Publisher
Surety Agent. Guido

Eduard. O. bunt; Ronald Frau company. Publisher
Surety Bond-

Edrard 0. hunt: Ronald Pres: 00., Publisher
The Surety 0011mm and the Contractor;

lecturo by g. D. Smith
International Association of Casualty and Surety Undomiters
5 booth

1” Convention

and Convention

81'! convention

4th Convontion

5th Conventim
Principles of muranoo

061mm
18.10 Beadingl in Insurance
Zartlmn and Prloo

Emma's Insuranoo

Hood

 

 

 

 

 

 

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MICHIGAN STATE EUNIVERSITYLI BRARIE

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