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MACDC Intercounty Drain Procedures Training. Surety Bonds and Insurance. John Brennan Fahey Schultz Burzych Rhodes PLC. February 15, 2017 macdc.us. You: Learning about Security and Insurance. macdc.us .
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MACDCIntercounty Drain Procedures Training Surety Bonds and Insurance John Brennan Fahey Schultz Burzych Rhodes PLC February 15, 2017 macdc.us
You: Discovering your contractor filed for bankruptcy in the middle of the project. macdc.us
You: Trying to determine if the Board has coverage for this… macdc.us
Surety Bonds and Insurance Your “Level 1” worry list for projects: • Are you hiring a responsible contractor? • Will the job be done on time? • Will the job be done as spec’d? • Will we get sued by subcontractors? • Will the job be accident free? macdc.us
Limited Protection Security and Insurance gives significant protection, but typically not for things like: • Contract disputes • Unexpected physical conditions • Weather delays • Landowner disputes • Property right disputes • Permit compliance issues macdc.us
Whose Job is it, Anyway? The person responsible for assuring that there is adequate protection is: • The engineering consultant? • MDARD? • A deputy drain commissioner? • An insurance broker/agent? • The contractor? • The lawyer? macdc.us
Full-board responsibility Obtaining proper protection is not a ministerial task -- it is a drainage board responsibility. • Fiduciary Duty – limit risk and protect public funds • Drain Code, Section 223 (certain protection mandatory for contracts in excess of $100,000; optional for less) macdc.us
Drainage Board’s Discretion Code provides for type of security and insurance but gives drainage board discretion regarding: • Amounts of security or limits of insurance • Type of security • Identity of bond or insurance company • Whether to insist on security or insurance for projects under $100,000 macdc.us
Drainage Board Action to Determine Security and Insurance • Full coverage to ensure: • Bid Security • Performance Security • Payment Security • Liability/Indemnity Coverage macdc.us
Bid Security macdc.us
Bid Security • Incomplete knowledge about contractors • If accepted low-bidder cannot sign contract: • Loss of bargain • Other bids no longer good • Other contractors may now be unavailable • May have to re-let the bids • Result: Delays, higher costs macdc.us
Bid Security Drain Code, Section 223(1) • Certified check or “its equivalent” • Bid bond is preferred • “Reasonable Amount” (5 – 10% typical) • Low bidder as 10-days from bid acceptance to: • Furnish required security and insurance • Execute contracts • Deposit/bond kept as liquidated damages macdc.us
Performance Security • Used in the event that a contract is either not completed, or not completed to the terms. macdc.us
Performance Security -- Types • Drain Code, Section 223(2) gives the drainage board discretion regarding type of security • Cash, certified check, performance bond, escrow agreement, irrevocable letter of credit and even personal security • Performance Bond is recommended. • Cash & Personal Security are not recommended. macdc.us
Performance Bond Provisions • Drain Code, Sec. 223(4): If a contract is not completed “in accordance with its written terms,” security shall be used to complete the project • Beware of conflicting provisions and conditions in Performance Bond • Waiver of notice re: changes in contract term • Automatic increase provision for change orders macdc.us
Performance bond provisions • Binding paragraph • Description of underlying obligation • The bond condition • Penal sum – no less than contract price • Trigger: “any breach” or “substantial breach” • Bond obligation term (at least until sub. compl.) • Time to bring suit (may not be as long as SOL) macdc.us
Payment Security macdc.us
Payment Security • Unpaid contractors and suppliers may make claims on the owner • Protects against statutory liens • Permitted, but not required under the Drain Code macdc.us
Payment Bond • Guarantees payment of obligations of contractor to • Subcontrators • Laborers • Suppliers • Amount is discretionary macdc.us
Payment bond terms • May be conditioned on no owner default • Timely notice of claim • May be limited to pay claimants with direct contracts with contractor • Disputed amounts may be litigated between surety and claimants macdc.us
Insurance macdc.us
Insurance • Liability/Indemnity • Workers’ Compensation and Similar Claims • Railroad Protective Liability Insurance macdc.us
Liability Insurance • Drain Code, Sec. 223(5) requires a “bond or indemnity insurance” for projects greater than $100,000 • Must cover entire term of contract • Amount set by drainage board macdc.us
Liability Insurance • Commercial General Liability Coverage • Needed Endorsements: • Additional Insured Endorsement • Designed Construction Project General Aggregate Limit Endorsement macdc.us
Certificates or Declaration Page? • Certificate of Liability Insurance on its own does not guarantee coverage • Obtain at least the endorsements • Copy of policy Declaration Page listing endorsements • Coverage is required as pre-condition of signing contract macdc.us
Questions? John Brennan Fahey Schultz Burzych Rhodes PLC 4151 Okemos Road, Okemos, MI 48864 Email: jbrennan@fsbrlaw.com Tel: (517)381-0100 Website: www.fsbrlaw.com macdc.us
