Maintaining the tight-knit relationship between the surety bond industry and the construction industry is vital for the proliferation of public works projects. Contractors have a legal obligation to procure the necessary bonds to engage in these projects, but state and local officials aren’t always forthcoming about this mandatory requirement. And while the National Association of Surety Bond Producers (NASBP) has been flooding government inboxes with reminder letters, it takes a concentrated effort between the principal, obligee, and surety to jumpstart public projects efficiently and free of legal transgressions.
In the event that a local or state entity attempts to circumvent federal bond requirements, contractors need to be prepared for what comes next. In this brief article, a Raleigh construction lawyer from Cotney Construction Law will explain what contractors should do when a government entity attempts to waive bond requirements. Remember, if you need assistance preparing a Raleigh construction bond, including bid bonds, payment bonds, performance bonds, and more, consult a Raleigh construction attorney.
Surety Bonds Offer the Perfect Level of Protection
The main reason why state and local governments have an obligation to use surety bonds is because they are the only product that truly guarantees payment by providing all of the necessary protections. The Little Miller Acts, which are an extension of the Miller Act, require all fifty states to protect public projects through a surety. Although the laws vary from state to state, the majority require bonds to cover the entire value of the contract. While it’s impossible to say how frequently government entities illegally waive surety bonds, it’s not difficult to determine the risks of doing so.
According to the U.S. General Services Administration, the Miller Act mandates that general contractors who engage in projects (construction, alteration, or repair) exceeding $100,000 in value must obtain a completion bond and payment bond. However, the Federal Acquisition Regulation (FAR) Part 28 establishes mandatory bond requirements for projects exceeding $150,000 in value. Before purchasing a bond for your next public project, consult a Raleigh construction lawyer to ensure that you have the proper coverage.
Why Government Entities Eschew Surety Bonds
There are many reasons why government entities may try to forego the use of a surety bond, including:
- They may be unaware of the bond laws in their area.
- They may want to save money by encouraging the contractor to reduce their bid.
- They may want to accelerate the construction process by breaking ground as soon as possible.
- They may currently lack the necessary funding to complete the project.
- They may not understand the risks of violating their local bond requirements.
- They may not be able to find a contractor who can procure an A+ rated bond.
Whatever the reason may be, the contractor cannot accept a public contract if they aren’t required to meet the state or local bond requirements. If you have been engaged for a public project, but there has been no mention of a Raleigh construction bond, consult a Raleigh construction attorney.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.