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Current Surety Issues in Highway Construction

Current Surety Issues in Highway Construction. August 2, 2011 AASHTO Subcommittee on Construction. Agenda. Financial report Current issues Questions. Financial Report. Lagging indicator Recovery – weak and slow GDP growth – nothing to write home about. GDP Growth. Financial Report.

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Current Surety Issues in Highway Construction

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  1. Current Surety Issues in Highway Construction August 2, 2011 AASHTO Subcommittee on Construction

  2. Agenda • Financial report • Current issues • Questions

  3. Financial Report • Lagging indicator • Recovery – weak and slow • GDP growth – nothing to write home about

  4. GDP Growth

  5. Financial Report • Lagging indicator • Recovery – weak and slow • GDP growth – nothing to write home about • Consumer Confidence Index • Unemployment – jobs, jobs, jobs

  6. Unemployment Rate

  7. Financial Report • Lagging indicator • Recovery – weak and slow • GDP growth – nothing to write home about • Consumer Confidence Index • Unemployment – jobs, jobs, jobs • Tight budgets • Construction spending • Not out of the woods yet

  8. Financial Report - Surety • 2009 loss ratio – 19% • 2010 loss ratio – 13.2%

  9. Financial Report - Surety

  10. Where are all the losses – the wet blanket • By no means a hot recovery • Maintain discipline? • Beware of the ramp up

  11. Surety Issues • Waivers/threshold increases • Mentoring and technical assistance program • DOT/SFAA partnership • Bond Education Program • Workshops • Readiness

  12. Surety Issues • Alternative procurement methods • PPP • Bond requirements • Size of bond • Negotiated delivery

  13. Surety Issues • Mega projects • Capacity to meet need has expanded. • Right project/right contractor • Require largest amount reasonably available

  14. Surety Issues • Long term warranties • > 5 years • Certainty of judgment is reduced. • Reduced certainty = increased risk • Availability affected • Alternatives • Reduce term of warranty • Annual renewable bond • Exclude from performance bond

  15. Surety Issues • Onerous bond forms • Short response time • Terms that limit how a surety responds to a defaults • Automatic increases to the penal sum

  16. Know Your Surety • Surety is insurance. • Oversight and regulation is critical. • Beware of the fraudulent surety. • Sources of information • SFAA • State insurance agency • Best

  17. Contact Information • Robert J. Duke • Director of Underwriting/Assistant Counsel • The Surety & Fidelity Association of America • 202-778-3630 • rduke@surety.org

  18. Questions

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