Why do Public Construction Projects need Bid, Performance and Payment Bonds?

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Public construction work in America is chiefly undertaken by private sector firms. The lowest responsive bidder acquires this work through the open competitive sealed bid system. This system works well with the help of surety bonds.

The Bid Bond is intended to keep careless bidders out of the bidding process by assuring a promising and concerned bidder will enter into the contract and provide the required performance and payment bonds. If the lowest bidder fails to maintain these commitments, the owner is protected, up to the amount of the bid bond, usually for the difference between the low bid and the next higher responsive bid.

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 non-payment. The payment bond (or the construction bond) may be the only protection these claimants have if they are not paid for the goods and services they provide to the project.

Bonds: Many Benefits

  • Project owners trust those contractors more who have a performance bond.
  • Trust is built on both sides because performance bonds assure the contractor fulfills the conditions of the contract.
  • Payment bonds promise protection to laborers, material-suppliers and sub-contractors against non-payment.

Why do Construction Contracts need Advance Payment Bonds?

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Down payment, or an advance payment, bond is the bond required to secure the payment against default by the contractor if the client agrees to make an advance payment to a supplier.

In most of the cases on a construction project, an advanced payment guarantee will be required by the client if the contractor requests advance payment to help them meet significant start up or procurement costs that may have to be incurred before construction begins.

An advance payment bond is normally an on-demand bond, which makes it mandatory for the bondsman to pay the amount of money set out in the bond immediately on demand, without any preconditions having to be met. This is as opposed to a conditional bond (or default bond) where the bondsman is only liable if it has been established there has been a breach of contract.

Advance payment bonds must be very carefully drafted to set out the circumstances for payment and to make clear they are on-demand bonds.

Advantages of advance payment bond:

  • Additional liquidity is received to finance activities/orders.
  • The buyer is secure with a guarantee his advance payment will be returned if the contract isn’t fulfilled

Surety Bonds for Small Businesses

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Many people confuse surety bonds with regular insurance. The difference is significant. Let’s understand the why small businesses should maintain a surety bond by looking at different types of business uses for those bonds.

Surety Bonds for a Cleaning Business
Customers prefer cleaning services that are “licensed and bonded” to protect them from service providers acting in bad faith. Janitorial Bonds are comparatively inexpensive and help cleaning companies communicate to their customers they can be trusted.

Surety Bonds for Notaries
Notary Bonds protect people from unethical notaries. They also make it mandatory for notaries to meet several conditions before being allowed to conduct notary services in a given state.

Surety Bonds for Contractors
Contractors are required to have a License and Permit Bond or a Performance Bond. These are low-cost bonds protecting residents of the state from financial losses incurred by contractors. A “licensed and bonded” contractor provides confidence to those served, thus increasing trust. Getting a surety bond can be expensive in many states. Florida surety bonds offer inexpensive superior services and comprehensive solutions to minimize the risks inherent in the construction industry.

Surety Bonds for Car Dealers
Motor vehicle dealer bonds protect car owners from unethical practices committed by car dealers and their employees. These bonds are not insurance but a protection for customers.

2015-02 Bond Newsletter

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WE MIGHT AS WELL GET IT OVER WITH… the question on everyone’s mind, both Republican and Democrat, is who will be the Republican nominee for President? Although the general election is a year away, you can be certain that we will know long before then who the Republican nominee will be. Unless Hillary Clinton is indicted for issues relating to the email scandal, or there are some extraordinary development or revelation regarding the Benghazi situation, Hillary Clinton is the presumptive Democratic nominee. First of all, there is an attitude among many Democratic faithful that it is now “her turn”, particularly after the beating that she took at the hands of Obama. Add to that the power of the Clinton political machine and it is easy to see why she has both the backing and support that she currently does. Because of that, there has not been a rush among potential Democratic contenders to seek the nomination. The only one with any stature at all is Bernie Sanders and in my opinion he is not electable. He does have the enthusiastic support of the far left, but he would fall far short in a national election. 

No one seems to like Hillary Clinton that much and almost 70% of those polled think that she is dishonest. No doubt about the fact that she has no personal charisma and is highly unlikable, yet she stands as the presumptive Democratic nominee…go figure.

On the Republican side, no one six months ago would have or could have predicted what is taking place as it relates to potential Republican nominees. When Donald Trump announced his candidacy, most did not take him seriously and many felt offended that such a man could actually seek the Presidency of this great country. Since that time, Trump’s candidacy has become more of a reality and even though some refuse to accept the fact that he could be nominated or even elected as President, the truth is both may be the case.

To understand how and why this is taking place, we will have to recognize that this is not a political issue, it’s a social issue. We Americans, for the last 200 years have felt, and rightly so, that we are “an exceptional people”. We have proved it fiscally, militarily and socially. No country has come even close to providing its citizens with the necessities of life, the freedoms that we enjoy each day, the opportunities financially and socially and most importantly, the lack of any government tyranny in our lives. This is, without question, an exceptional country and we are an exceptional people. 

When Barack Obama was elected President, he did so apologizing to the world for the way that America had conducted itself domestically and internationally. He promised that we would no longer be the bullies that we had been and that we would lead the fight for freedom from behind, which is another way of saying we will no longer lead.

Most of us now feel that Obama has marginalized who we are and what we stand for. It is impossible for us not to feel that we are an exceptional country and an exceptional people and when we look at our place in the world now, most of us are upset and highly indignant.

Because our national dignity has been compromised, we want it back and we feel that the only way we can get it back is to elect a “winner”. We are frustrated with the gridlock in Washington and frankly we want a John Wayne or a Clint Eastwood figure to “kick some butt” and bring back our national dignity. We feel like it is our God given right to lead and most of us are tired of feeling compromised.

In my opinion, if the candidacies of Donald Trump and Ben Carson lose traction and steam, the most likely insider to win the nomination would be Marco Rubio.

It takes courage at this point in the election cycle to make any predictions. In the 2012 Presidential campaign cycle, former Texas Governor, Rick Perry, was leading the Republican field by 1.7 points. At this point in 2008 cycle, Hillary Clinton was leading Barack Obama by 15.6 points, while Rudy Giuliani was leading the GOP field by 10.7 points. Nothing on either the Republican or Democratic side is like anything that we have ever experienced before, so only time will tell.

 

FOR GLOBAL WARMING DOUBTERS… please note the following article in the Washington Post (important to read the article through the end):

The Arctic Ocean is warming up, icebergs are growing scarcer and in some places the seals and finding the waters too hot, according to a report to the Commerce Department yesterday from Consulate, at Bergen, Norway. Reports of fishermen, seal hunters and explorers all point to a radical change in climate conditions and hitherto unheard-of-temperatures in the Arctic zone. Exploration expeditions report that scarcely any ice has been met as far North as 81 degrees 29 minutes.

Soundings to a depth of 3,100 meters show the Gulf Stream still very warm. Great masses of ice have been replaced by moraines of earth and stones, the report continued, while at many points well known glaciers have entirely disappeared.

Very few seals and no white fish are found in the Eastern Arctic, while vast shoals of herring and smelts, which have never before ventured so far north, are being encountered in the old seal fishing grounds. Within a few years it is predicted that due to ice melt the sea will rise and make most coastal cities uninhabitable.

 

THIS REPORT WAS FROM NOVEMBER 2, 1922 AS REPORTED BY THE A.P. AND PUBLISHED IN THE WASHINGTON POST 90 YEARS AGO. I think we all want to treat our planet with respect utilizing the resources that have been made available to us with wisdom and understanding. We, however, cannot let our government utilize a natural reoccurring climate change as a basis for controlling and taxing unnecessarily the citizens of this country. There are countries, such as China, where extreme pollution is causing death and unnecessary environmental damage. This needs to change.

We need to be cautious about how we react to the data supposedly gathered by scientists around the world. We know for certain that the earth has not warmed on a consistent basis as the reports originally prognosticated. Is our climate getting warmer? Perhaps it is, but if you go back to the mid-70s, science was predicting that we were going to be entering another ice age. Admittedly July 2015 was officially the hottest month since records began in 1880 with an average temperature of 1.46 degrees higher than the average for the twentieth century. It was 0.14 degrees above the previous hottest month which occurred in 1998. Since 1998, there have been years in which the temperatures have gone down and others in which they have gone up, so any predictions by the scientists are highly suspect and once again, we need to careful not to give our government too much power to regulate and tax based upon very inconclusive climate information. 

“Never argue with an idiot, because bystanders don’t know who the idiot is.” – Mark Twain

“Nobody will ever win the battle of the sexes. There is just too much fraternizing with the enemy.” – Henry Kissinger

I know I am guilty of taking on the Democratic Party, so as a matter of equality, I would like to provide you with quotes from great orators of the Democratic Party of the past and of the great orators of the Democratic Party today. First, the past:

“One man with courage makes him a majority.” – Andrew Jackson

“The only thing we have to fear is fear itself.” – Franklin D. Roosevelt

“The buck stops here.” – Harry S. Truman

 “Ask not what your country can do for you; ask what you can do for country.” – John F. Kennedy

Great orators of the Democratic Party today:

“It depends on what your definition is of ‘is’?” – President William Jefferson Clinton

“Those rumors are false. I believe in the sanctity of marriage.” – John Edwards

“What difference does it make?” (RE: Benghazi) – Hillary Clinton

“I invented the Internet.” – Al Gore

“America is, no longer, uh, what it, uh, could be, uh, what it once was, uh, and I say to myself, uh, I don’t want that future, uh, for my children.” – Barack Obama

“I have campaigned in all 57 states.” – Barack Obama (quoted 2008)

“You don’t need God anymore, you have us Democrats.” – Nancy Pelosi (quoted 2006)

“Paying taxes is voluntary.” – Senator Harry Reid

 “Bill is the greatest husband and father I know. No one is more faithful, true and honest than he is.” – Hillary Rodham Clinton (quoted 1998)

“You have a business. You didn’t build that. Someone else did!” – Barack Obama (quoted 2012)

“We just have to pass the healthcare bill to see what is in it.” – Nancy Pelosi (quoted March 2010 – as one doctor said: That is also the perfect definition of a stool sample)

I am sure it gives all of us a sense of comfort to know that we have such brilliant minds in charge of our once-great country. As John Wayne once said: “Life is tough! It’s even tougher when you are stupid.”

 

WE ALL KNOW THAT THE INFORMATION CONTAINED IN MY BOND NEWSLETTER IS USELESS … so adding another section of useless facts certainly does not diminish its value:

  1. In Ancient Greece, women counted their age from the date in which they were married, not from the day they were born.
  2. In Egypt, in 1500 B.C. a shaved head was considered the ultimate in feminine beauty. Their women removed every hair from their heads with a special gold tweezers and polished their scalp to a high sheen with buffing cloths.
  3. In Elizabethan slang, the term “to die” meant to have an orgasm.
  4. In India, it costs less to have sex with a prostitute than it does to buy a condom.
  5. In medieval Thailand, they had movable type printing presses. The type was made from baked oxen dung.
  6. As most of you have probably already figured out, in space, astronauts can’t cry because there is no gravity, so the tears can’t flow.
  7. In the United States, a pound of potato chips cost 200 times more than a pound of potatoes.
  8. Leonardo Da Vinci could draw with one hand and write the other – at the same time.
  9. If #8 above was not amazing enough, Leonardo Da Vinci spent 12 years painting the Mona Lisa’s lips.
  10. Most guys who wear jeans have had a pair of Levi 501 Jeans. Ever wonder where the number 501 comes from? 501 was the original stock number for the original jeans in the first Levi’s store.
  11. Shakespeare was the first to use certain words that are now common, including – hurry, bump, eyeball and anchovy.
  12. The state with the highest percentage of people who walk to work: Alaska.
  13. The animal that can last the longest without water is the rat.
  14. A hippopotamus can run faster than a man.
  15. 100,000 years ago, the human gestation period was 15 months rather than the current 9 months.
  16. Most useful and interesting of all useless facts is that 54% of Americans prefer to fold their toilet paper rather than wad it.
  17. It is virtually impossible to sneeze with your eyes open.
  18. February 1865 is the only month in recorded history not to have a full moon.
  19. Ever wonder why tiger sharks are aggressive? The embryos of tiger sharks fight each other while in their mother’s womb, the survivor being the baby shark that is born.
  20. The electric chair was invented by a dentist. No wonder it took 8 minutes for the first victim electrocuted to die.
  21. The Eisenhower Interstate System requires that one mile in every 5 miles must be straight. The straight sections are usable as air strips in times of war or other emergencies.
  22. The inventor of the flushing toilet was Thomas Crapper.
  23. The phrase “rule of thumb” is derived from an old English law which stated that you could not beat your wife with anything wider than your thumb.
  24. The word “girl” appears only once in the bible.
  25. The word “Hallelujah” is common to all languages. It is never translated.

 

LIVING IN MIAMI-DADE COUNTY IT IS EASY TO TAKE THE CITY OF MIAMI FOR GRANTED… but for the past eight (8) years, Knight Frank distributes an annual Wealth Report which is a collection of data about the global UHNWI (Ultra High Net Worth Individuals), defined as those who have US$30 million or more in net assets. In the most recent 2014 report, the cities that matter most to UHNWI’s were:

  1. London – Condos are selling in London for $6,000 psf.
  2. New York – Condos are selling for $4,000 psf.
  3. Singapore – Condos are selling for $1,500 psf.
  4. Hong Kong – Condos are selling for $4,500 psf.
  5. Geneva – Condos are selling for $3,000 psf.
  6. Shanghai – Condos are selling for $2,000 psf.
  7. Miami, Florida – Condos are selling for $800 psf.

What is most interesting about the report is that in 2009 Miami was the 29th most important city, in 2011 Miami was still #29 in the same rating, but in 2013 Miami’s ranking raised to #8 and in 2014 Miami is the 7th most important city to UHNWI’s.

There is no question about the fact that the condo market is the main real estate financial driver for our real estate/construction economy, in not only Miami, Florida, but for Miami-Dade County as a whole. The Miami Herald published an article in May of 2005 projecting that 62,000 condos were planned for development within the Brickell Avenue/Downtown Miami corridor. In actuality, just 17,502 of those proposed 62,000 condos were developed, less than 40% of what is projected.

In tracking the data of Miami – South Florida current cycle, we found that the number of proposed new condos is, once again, different from the number of condos that have actually been brought to market for sale thus far. Currently, the estimated number of new “proposed” condos East of I-95 in Miami-Dade, Broward and Palm Beach is between 38,000 and 45,000 units. Of those, approximately 16,000 to 18,000 have been brought to market for sale since the last business quarter of 2011 (42% of the 38,000 “proposed”). To date over 62% of the inventory has been sold.

Although there is reason to believe that the case of building and selling condominiums in Miami-Dade, Broward and Palm Beach County may be slowing, there is less than 10,000 new condo units remaining to be sold and this is approximately 18 months of new condo inventory for sale, according to historical absorption patterns.

 Back to the vitality of the City of Miami for a moment. In North America, the top five (5) cities of importance to UHNWI’s are:

  1. New York
  2. Miami
  3. Washington, D.C.
  4. San Francisco
  5. Toronto

There is no questions about the fact that Miami has long outgrown its value as simply a depository for scared South and Central American money and has become a worldwide destination. Based upon the last information I was able to obtain, last year over 90% of the condos sold in Miami-Dade County were sold to other than US Citizens.

Our position as a banking center for the Southern hemisphere is unquestioned. 53 banking offices hold $12 billion in domestic deposits and $6.7 billion in non-resident alien deposits on Brickell Avenue, and nearly $7 billion in foreign money sits on the balance sheet in greater Miami banks. Miami is the second most popular banking hub in the United States after New York City. Currently home to over 60 international banks and nearly 100 alternative investment companies, Miami’s thriving financial district is attracting financial institutions from around the world.

 Even the financial tycoons who aren’t bringing their actual business to Miami are bringing their money here in a major way – through large real estate purchases. Goldman Sachs CEO Lloyd Blankfein and Apollo Global Management’s Leon Blac have both reportedly purchased eight (8) figure residence in Miami Beach.

Not only is Miami an international hub for condominiums, but Miami vacancy rate for rentals is currently the third lowest in the nation.

Miami is not the only city in the State of Florida that is growing. The State of Florida, depending on which demographic study you want to believe, will grow faster in raw population than any other state in the Union in the next twenty-five (25) years. In 1914, Florida was the 33rd most populated state in the United States. In 1914, New York, Texas and California were the top three (3). In 1967, the year I moved to Miami, Florida was the 15th most populated state in the country with New York, California and Texas as the top three (3) most populated states. In 2006, Florida was the 4th most populated state in the nation with California, Texas and New York, in that order, as the three (3) most populated. In 2015, Florida has become the 3rd most populated state in the country, with California and Texas as #1 and #2. Florida replaced New York as the 3rd most populated state. This trend will continue unabated for the next twenty-five (25) years at least. Some are projecting, on the low side, that in 2040 Florida will have a population of 26 million, but there are other projections stating that Florida will double its population in the next twenty-five (25) years and that Florida will have a population of close to 40 million people. I predict that 40 million will be closer than 26 million to the actual population of Florida in 2040.

As far as I am concerned, Miami-Dade County is as close to paradise as one could get. Forbes Magazine named Miami “America’s cleanest city” because of its year round air quality, vast green spaces and clean drinking water. This makes Miami an extremely attractive city to live in. The tropical climate is inviting for all types of outdoor lifestyle activities and events, as we all know.

Miami-Dade County is the principal economic engine that drives the economy of Florida. There are many other beautiful cities and areas in Florida that enjoy a very brisk economy and a wonderful way of life for those living in those areas. Without question, Florida is the most desirable state in the country and for that reason, we will grow more in raw population than any other state in the Union in the next twenty-five (25) years.

 

WHERE YOU LIVE MAKES A DIFFERENCE… you may have heard on the news about a Southern California man who was put under 72-hour psychiatric observation when it was found he owned 100 guns and allegedly had 100,000 rounds of ammunition stored in his home. The house also had a secret escape tunnel.

By California standards, someone owning 100,000 rounds was considered mentally unstable. Not so in other areas around the country. Please note:

  1. In Michigan, he would be called a Detroit resident who owns a pharmacy.
  2. In Arizona, he would be called an avid gun collector.
  3. In Arkansas, he would be called a novice gun collector.
  4. In Utah, he would be called modestly well prepared, but they would probably reserve judgment until they made sure that he had a corresponding quantity of stored food.
  5. In Kansas, he would be a guy down the road you would want for a friend.
  6. In Montana, he would be called the neighborhood “go-to-guy”.
  7. In Idaho, he would be called a likely gubernatorial candidate.
  8. In Georgia, North Carolina, Virginia, West Virginia, Louisiana, Mississippi, Alabama, Missouri, Wisconsin and Kentucky, he would just be a deer hunting buddy.
  9. In Texas, he would just be “bubba” who is running a little low on ammo.

 

BEING POLITICALLY CORRECT… has been essential in the last forty (40) years if you were to be taken seriously as a candidate to any national office. Thanks to the current Republican front runner, Donald Trump, being politically correct does not seem to be that important during this presidential election cycle. As a matter a fact, you could well accuse many of our past iconic leaders of having no sensitivity in that regard. Please note four (4) telegrams between then President, Harry Truman and General Douglas MacArthur on the day before the actual signing of the World War II surrender agreement with the Japanese in September of 1945. The contents of these four (4) telegrams are exactly as received at the end of the war, not a word has been added or deleted!

  1. Tokyo, Japan

       0800-September 1, 1945

      To: President Harry S Truman

      From: Genera D A MacArthur

      Tomorrow we meet with those yellow-bellied bastards and sign    
      the Surrender Documents, any last minute instructions?

2.  Washington, D.C.

      1300-September 1, 1945

      To: D.A. MacArthur

      From: H S Truman

      Congratulations, job well done, but you must tone down your       
      obvious dislike of the Japanese when discussing the terms of the
      surrender with the press, because some of your remarks are
      fundamentally not politically correct!

3.  Tokyo, Japan

      1630-September 1, 1945

      To: H S Truman

      From: D A MacArthur and C H Nimitz

      Wilco Sir, but both Chester and I are somewhat confused, exactly
      what does the term politically correct mean?

4.  Washington, D.C.

      2120-September 1, 1945

      To: D A MacArthur/C H Nimitz

      From: H S Truman

      Political Correctness is a doctrine, recently fostered by a
      delusional, illogical minority and promoted by a sick mainstream
      media, which holds forth the proposition that it is entirely
      possible to pick up a piece of shit by the clean end!

 

USELESS, BUT INTERESTING

  1. For the first time since 2009, the NFL, in September, went an entire calendar month without any of its players being arrested. The most recent arrest came on August 26, 2015.
  2. Over the past couple of months, the most asked questions about 2016 Presidential candidates on Google were from people who wanted to know Hillary Clinton’s age, Jeb Bush’s height and Donald Trump’s net worth.
  3. Of the 21 countries that use the Euro as their currency, almost half have seen their economy shrink in inflation – adjusted terms, since 2007. By contrast, not one of the “floater” countries – European nations that didn’t adopt the Euro – has had its economy shrink over the same period.
  4. At $275 billion, Facebook’s market value is now slightly higher than General Electric’s $273 billion. Facebook is still dwarfed by the 123 year old industrial titan in other ways, however. GE reported $149 billion in sales last year to Facebook’s $12.5 billion and GE employed 300,000 people to Facebook’s 9,200. Financially GE dwarfs Facebook yet, in market value, Facebook is slightly more valuable than General Electric. The reason: stock prices are determined by financial value X emotional value. No one particularly loves GE, but hundreds of millions of people around the world love Facebook. It is that love, not Facebook’s sales or profits, that has created the $275 billion market value.

 

“CAPACITY” IS THE SINGLE MOST IMPORTANT WORD IN TODAY’S SURETY MARKET. Based upon the tremendous construction economy we have in Florida, the greatest challenges that relates to your surety credit may be one of aggregate capacity. At Nielson, Hoover & Company, we pride ourselves in being the largest surety broker in the Southeast United States and for very good reason. Our ability to deal with the surety capacity needs of our clients has been a key factor in our size and growth. We deal with and write with more surety markets than any other surety broker in the Southeast United States. We write business with over 64 different surety markets. This allows us to find that surety market that will address the needs of each client we have the opportunity to work with.

 If you are finding any resistance in obtaining the aggregate surety credit that your company needs, please do not hesitate to call any one of our offices. Nielson, Hoover & Company is a surety broker and a surety broker only. We do not write insurance, we do not deliver pizza, we only write bonds and we do it better than anyone else.

  

MY ADVICE IS WORTH WHAT YOU ARE PAYING FOR IT… but if you do not have flood insurance, you are at risk no matter where you are living. Many South Carolina homeowners who suffered flooding after devastating storms are in for an unpleasant surprise as the waters recede. Much of the residential damage caused by Hurricane Joaquin is most likely not going to be covered by insurance. Only 14% of Americans are insured against flooding. Flood insurance is written almost exclusively by the National Flood Insurance Program. The average premium is approximately $700.00 per year, but many homeowners in lower risk areas balk at the added cost, even though more than 20% of flood claims come from people outside of high risk areas. While most disasters are covered under the standard homeowner’s policy, flooding is not.

The terrible rainstorms in South Carolina serves as a solid reminder to make sure you are properly covered. In addition, the recent rains in Southern California have also had a devastating effect on many homeowners there. If your home can be destroyed in drought stricken Southern California by floods, it can be destroyed anyplace. Nearly all flood policies require a 30-day waiting period before becoming effective. Federal flood insurance covers up to $250,000 of your home and up to $100,000 for personal possessions. This is not a pitch for additional business, Nielson, Hoover & Company does not sell flood insurance. Just a word to the wise. If you don’t have it, the approximate $700.00 a year you will spend may be the best investment you can make.

 

PARTING SHOT:

“Any man who thinks he can be happy and prosperous by letting the government take care of him had better take a much closer look at the American Indian.” – Henry Ford

Charles J. Nielson