By Edward Lozowicki and Robert Sturgeon
 

Binding arbitration of construction disputes is frequently required by standard industry contracts. For example, the contract forms published by the American Institute of Architects either require or provide an option for arbitration under the Construction Industry Rules of the American Arbitration Association ("AAA"). The latter rules authorize the arbitrator to decide whether the contractual arbitration agreement is enforceable. (See, e.g. Rule 9 of AAA Construction Industry Rules). However some courts have decided this issue should be determined by the courts, rather than the arbitrator.
 

But a recent Supreme Court decision determined that an arbitrator can decide enforceability issues if the arbitration clause expressly provides such authority, similar to the AAA Rule 9. In Rent-A-Center West, Inc. v. Jackson, the United States Supreme Court held in a 5-4 decision that under the Federal Arbitration Act ("FAA"), a contractual arbitration clause which "clearly and unmistakably" delegates to the arbitrator the authority to determine the validity of the arbitration agreement is enforceable and binding on the parties, and that the issue is not to be decided by the court. In doing so, the Supreme Court reversed the prior ruling of the Ninth Circuit Court of Appeals, which had held that it is for the court and not the arbitrator to decide whether the arbitration agreement is valid and enforceable in the first instance. 130 S. Ct. 2772, 177 L. Ed. 2d 403 (2010)

Plaintiff Jackson was a former employee of Rent-A-Center who had sued for employment discrimination under state and federal law. In the course of his employment, Jackson and Rent-A-Center had signed a Mutual Agreement to Arbitrate Claims ("Agreement") which stated called for arbitration of all disputes arising out of Jackson's employment. The Agreement also provided that the "Arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including . . . any claim that all of part of this Agreement is void or voidable." The trial court ruled that based on the Agreement, it was for the arbitrator to decide whether the agreement was unconscionable and unenforceable, and therefore ordered that the case proceed in arbitration rather than court. On appeal the Ninth Circuit reversed and ruled that, as the plaintiff contended he did not consent to the contract as a whole, the question of whether he consented to the arbitration agreement contained within the contract was a question for the court, not the arbitrator.

In reversing the decision of the Ninth Circuit, the majority of the Supreme Court focused on its prior decision in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 Sup. Ct. 1801, 18 L.Ed.2d 1270 (1967). In Prima Paint, the Court had held that under § 2 of the FAA, an arbitration agreement in a contract is "severable" and may be enforced by a federal court even if the balance of the contract is unenforceable. In Rent-A-Center, the majority relied on Prima Paint to focus its inquiry on the procedural issues in the case. The Court emphasized that Jackson had challenged the contract as a whole on the ground that it was unconscionable, but that he had not raised a specific challenge in the trial court to agreement allowing the arbitrator rather than the court to decide whether the arbitration provision was enforceable. It further relied on the fact that Jackson's reasoning for why the contract was unconscionable focused on the contract as a whole, and that Jackson did not specify grounds as to why the specific agreement to delegate the decision to the arbitrator was unconscionable.

The Court explained that although "agreements to arbitrate are severable," that "does not mean that they are unassailable. If a party challenges the validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under § 4" of the FAA. 130 S. Ct. 2778. The Court then noted that the "District Court correctly concluded that Jackson challenged only the validity of the contract as a whole," not specifically the validity of the agreement to allow the arbitrator to decided the validity of the agreement. 130 S. Ct. at 2779. Jackson had argued that fee-sharing procedures and discovery limitations in the agreement rendered it unconscionable. But the Court concluded that because "Jackson . . . did not make any arguments specific to the delegation provision; [but instead] he argued that the fee-sharing and discovery procedures rendered the entire Agreement invalid," his challenge was procedurally insufficient to invoke federal court review of the enforceability of the delegation provision. 130 S. Ct. at 2780.

Many construction contracts involve use of materials purchased in interstate commerce, and the FAA is therefore often applicable to arbitration provisions in such contracts, Allied Bruce Terminix Cos. Inc. v. Dobson, 513 U.S. 265, 115 S. Ct. 834 (1995). Contractors and developers who wish to preserve the right to judicial review of the enforceability of an arbitration delegation provision should first ensure the language of the contract is clear that the court and not an arbitrator is to decide issues of enforceability of the arbitration agreement. On the other hand, if a party wishes to challenge such an agreement, it must be careful to satisfy the procedural requirements. First, it must raise a specific challenge to the agreement to allow the arbitrator to decide the validity of the contract, not merely a challenge the general enforceability of the contract as a whole. Second, the party must support the challenge with reasons why the agreement to allow the arbitrator to decide the issue is unconscionable (or otherwise invalid), not merely reasons why the contract as a whole is unconscionable.

Authored By:

Edward Lozowicki and Robert Sturgeon

Source: http://feeds.lexblog.com/~r/ConstructionInfrastructureLawBlog/~3/y8jl0Bs_1Xw/

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In sustainable construction, one of the most proven and sought after energy reducing techniques is superinsulating in new construction or retrofitting an old building with more efficient or additional insulation.  When installed correctly, insulation is very effective in reducing energy loads on HVAC systems by keeping a more regulated and constant indoor temperature.  There are many types of insulation ranging from spray foam, to loose-fill batt, to rigid EPS, and choosing which one to use can be based on many factors.  However, the R-value of insulation takes precedent over all other factors when choosing insulation.  

An R-value is defined as a measure of a material?s ability to resist heat transfer. 
Because consumers buy insulation based on its R-value, companies who manufacture insulation must have the R-value of their product regulated by ASTM standards.  While several technical standards have been written due to specific applications of what materials are tested, a general process is common in all ASTM tests. 

The Oak Ridge National Laboratory has state of the art technologies for testing insulation and has been conducting R-value testing for over two decades.  All of their tests are now done using a hot box apparatus.  On a large scale, a hot box apparatus can fit entire mock-up wall sections into its clam shell-like chamber.  After running a test, an average rating per square foot can be assigned to any given wall section.  A Rotatable Guarded Hot Box has the ability to provide the thermal conductivity measurement in a vertical or horizontal application or any angle in between that a pitched roof may be.  On a smaller scale a hotbox apparatus can be built to test the R-value over a given square foot of insulation or sheathing material. 

How a Hotbox Apparatus Works

Two clam shell chambers hold the material to be tested in an airtight and locked position.  This creates two climate chambers, one on each side of the material, which can be regulated to steady-state conditions.  One side is designated as the metering (hot) chamber, while the other is the climate (cold) chamber.  Air is sent into each chamber and regulated by velocity and temperature of the air at the source.  The air is blown parallel to the surface of the material to prevent any convection that could occur.  Once the hot and cold side has reached a steady state the temperature of the material is measured on each side and the test begins.  The average temperature is recorded on each side of the material until the temperatures and heat flows are equilibrated.  Using the data collected the R-value is calculated using energy output of heating and cooling components, the energy exchange between the two chambers, the area of the chamber and average surface temperatures on each side.  The formula for R-value is, R= A[t1-t2]/(Qk +Qf + Qmb).  At Oak Ridge National Library, arriving at a final R-value means that two successive four hour tests have produced values within 1% of variance.

Source: Oak Ridge National Laboratory

Source: http://www.sustainableconstructionblog.com/construction/how-r-values-are-measured

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By: Michael H. Payne and Edward T. DeLisle

The U.S. Small Business Administration published a package of final rules on February 11, 2011, that will revise the regulations of its 8(a) Business Development program to better ensure that the benefits flow to the intended recipients and help prevent waste, fraud and abuse. The rules were published in The Federal Register and will become effective on March 14, 2011.

The revisions are the first comprehensive overhaul of the 8(a) program in more than 10 years. The regulations incorporate technical, as well as substantive, changes that mirror legislation enacted since the last revision in June of 1998. The rules cover a variety of areas ranging from clarifications on determining economic disadvantage to requirements on Joint Ventures and the Mentor-Protégé program. Some of the components of the 8(a) program that the revised regulations will affect include:

Joint Ventures - The new rules require that the 8(a) firm must perform 40 percent of the work of each 8(a) joint venture contract that is awarded, including those awarded under a Mentor/Protégé agreement, to ensure that these companies are able to “build capacity.” In other words, the SBA has discarded the vague “significant portion” test in favor of a requirement for a protégé to perform 40 percent of the work performed by the joint venture partners.

Economic Disadvantage – The rules provide more clarification on factors that determine economic disadvantage as it relates to total assets, gross income, retirement accounts and a spouse of an 8(a) company owner when determining the owner’s ability to access capital and credit.

Mentor-Protégé Program – The rules add consequences for a mentor who does not provide assistance to its protégé, ranging from stop-work orders to debarment.

Ownership and Control Requirements – The rules provide flexibility on whether to admit 8(a) program companies owned by individuals with immediate family members who are owners of current and former 8(a) participants.

Tribally-Owned Firms – The rules require firms owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations and Community Development Corporations to report benefits flowing back to their respective communities.

Excessive Withdrawals – The rules amend the regulations on what amount is considered excessive as a basis for termination or early graduation from the 8(a) program.

Business Size for Primary Industry – The rules require that a firm’s size status remain small for its primary industry code during its participation in the 8(a) program.

Other interesting changes include a revision to the prior practice of allowing a mentor-protégé joint venture to only submit bids or proposals on three solicitations in two years. Under the new regulations, instead of being limited to three bids or proposals over a two-year period, a mentor-protégé joint venture is limited to three contract awards. This is a far more reasonable way to limit participation. In addition, the new regulations also make it possible, with SBA approval, for joint venture partners who meet other small business requirements to form a second or a third joint venture, each with the ability to receive an additional three awards.

We will provide a more in-depth analysis of the new rules prior to the March 14, 2011 effective date and will also post a copy of the amended Code of Federal Regulations when it is published. The 8(a) program is a nine-year business development program for small businesses where the owner(s) fits the SBA’s criteria of being socially and economically disadvantaged and the same owners control the firm. The 8(a) program helps these firms develop their business and provides them with access to government contracting opportunities, allowing them to become solid competitors in the federal marketplace. It also provides specialized business training, counseling, marketing assistance and high-level executive development to its participants. In FY09, small businesses received $18.6 billion in 8(a) contract dollars.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters. Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group who represents contractors on a whole range of small business issues including teaming arrangements and compliance with the SBA’s rules and regulations.

Source: http://feeds.lexblog.com/~r/FederalConstructionContractingBlog/~3/NuZVWuWLIm4/

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--Thermal insulated window treatments act as a similar energy efficient retrofit as low E window films.

In a recent post, the use of low E residential window films was discussed as a viable opportunity to reduce solar heat gain.  Solar heat gain is perhaps one of the largest contributors to high cooling costs in warmer months.  In addition, UV rays entering your house can cause furniture to be destroyed.  There are plenty of undeniable reasons why solar heat gain can be devastating to a home's ability to be energy efficient; the question is what can be done to reduce or prevent it?

If low E residential window films don't seem to be a practical solution, or if you are looking for additional protection against solar heat gain, one should consider the use of energy efficient curtains or blinds. 

Mostly all windows in a home or office that look directly into occupied spaces need curtains or blinds for privacy at night and to shade the interior when not as much direct sunlight is desired.  When shopping for curtains and blinds for these instances consider options that use liners or materials that reject UV rays that cause solar heat gain and damage your furnishings.  Here are some great selections that are stylish and energy efficient. 

Thermal Insulated Blackout Curtain
by Best Home Fashion
$64.99

These curtains come in a variety of colors and are sold in pairs at 84 inch length and feature a sleek, contemporary look with solid grommet top fittings that slip right over any standard or designer curtain rod.  Laboratory testing concludes that these curtains will block 100% of UV rays and will insulate against heat and cold.  Also available in 63" length for $59.99.

Imperial Matchstick Bamboo Roll-up Blinds(30 x 72)
by Radiance
$31.97

These indoor/outdoor blinds filter harmful UV rays, offering energy efficient insulating qualities.  Use these blinds on your windows and notice a decrease in your home or office's energy demands.  Also available in 36" and 48" widths.

Source: http://www.sustainableconstructionblog.com/renovations/energy-efficient-curtains-and-blinds

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Source: http://feedproxy.google.com/~r/feedburner/SETh/~3/Fq1TAlMb6dY/

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By Robert Sturgeon

Parties to construction arbitrations who are disappointed with the arbitrator's award are often doubly-disappointed to learn that they have very little chance of successfully appealing in a court to overturn the arbitrator's decision. Because arbitration is intended to be a final and complete alternative dispute resolution process, judicial review of the arbitrator's award is quite limited. Ordinarily a court may not review the merits of the dispute, or overturn an arbitration award on ground that the arbitrator made legal errors or erred in applying the law to the facts. In general, a court is authorized to overturn an arbitration award only where (i) the award was procured by corruption or fraud; (ii) there was corruption or misconduct by the arbitrator, (iii) the arbitrator exceeded his or her powers, (iv) the arbitrator refused to postpone the hearing despite there being good cause to do so and that prejudices the parties, or (v) the arbitrator failed to disclose potential grounds on which he or she could be disqualified or refused to disqualify himself when there was cause to do so. See, e.g., Cal. Civ. Proc. Code 1286.2.
 

To expand the scope of judicial review beyond these parameters and obtain something akin to an ordinary right of appeal, parties have attempted to "contract around" the statutory provisions, and have included language in their arbitration agreements providing for appeal or judicial review of the substance of the arbitrator's decision. In a recent decision, the California Court of Appeal held that to be enforceable, an agreement for expanded scope of judicial review of the arbitrator's award must be explicit and unambiguous, and language in the arbitration agreement stating that the arbitrator must render an award "in accordance with substantive California law" is not sufficient. Gravillis v. Coldwell Banker Residential Brokerage Company, 182 Cal. App. 4th 503 (2010).

In Gravillis, the plaintiff had purchased a home using a standard form California purchase agreement which included a clause requiring arbitration of any disputes arising out of the agreement. The arbitration clause stated that the arbitrator "shall render an award in accordance with substantive California law." 182 Cal. App. 4th at 508. Before he moved into the home, plaintiff discovered it had extensive structural damage which left it essentially uninhabitable. Plaintiff filed a lawsuit in court against his real estate brokers for failing to disclose the structural defects. Based on the arbitration clause in the purchase agreement, the trial court ordered the case to arbitration. After a hearing, the arbitrator issued an award in favor of the plaintiff and awarded him damages and costs. The brokers petitioned the court to vacate the award, contending that the arbitrator had made substantive legal errors by (i) finding the brokers had breached a fiduciary duty to plaintiff, (ii) awarding the plaintiff "benefit of the bargain damages" rather than "out of pocket expense" damages; and (iii) awarding the plaintiff his costs incurred in the arbitration. The trial court denied the brokers' petition, and the brokers appealed. On appeal, the brokers asserted they were not subject to the general rule or non-reviewability, but were entitled to have the award overturned on the merits based on the arbitrator's legal errors because the arbitration agreement stated that the arbitrator was required to render an award "in accordance with substantive California law."

The Court of Appeal first emphasized the reasoning underlying the general rule -- because parties to arbitration have a right to expect the arbitration will be a final and binding resolution of their dispute, as a general matter, "the merits of the controversy between the parties [in arbitration] are not subject to judicial review," and the "courts will not review the validity of the arbitrator's reasoning." 182 Cal. App. 4th at 514. The brokers argued that because the arbitrator had made legal errors which were "not in accord with substantive California law," the arbitrator had "exceeded his powers" within the meaning of Code of Civil Procedure § 1286.2, and therefore the award could be vacated under the statutory provisions. The Court of Appeal rejected this contention, explaining that an arbitrator exceeds his or her powers when the arbitrator acts without subject matter jurisdiction, decides an issue that was not submitted to arbitration, upholds an illegal contract, issues an award that violates a statutory right or well-defined public policy, or selects a remedy that is not authorized by law or rationally related to the contract. 182 Cal. App. 4th at 511. The court held that the language requiring the award be "in accordance with substantive California law" was not sufficient to convert ordinary legal errors of the sort alleged by the brokers into acts in excess of the arbitrator's powers.

The court further explained that while California law allows parties to cases governed by the California Arbitration Act to contract for expanded judicial review, because a main purpose of arbitration is to avoid the judicial process, the bar for allowing expanded judicial review of the award is high. First, the arbitration agreement must be governed by the California Arbitration Act rather than the Federal Arbitration Act ("FAA") -- federal law does not allow parties to contract for an expanded scope of judicial review. 182 Cal. App. 4th at 518; Hall Street Associates LLC v. Mattel, Inc. (2008) 552 U.S. 576. Thus, for example, if the agreement states elsewhere that it is governed by the FAA, it will not qualify for expanded judicial review. Second, "to take themselves out of the general rule that the merits of the award are not subject to judicial review, the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the courts." 182 Cal. App. 4th at 516 (quoting Cable Connection, 44 Cal. 4th at 1361). Hence, an arbitration agreement which states that "[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error" is sufficient to allow for judicial review of the substance of the award under California law. Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334, 1342 n. 3 (2008).

However, language in an arbitration agreement requiring that the arbitrator render an award "in accordance with substantive California law" does not meet that standard. That language does not expressly deprive the arbitrator of the power to commit legal error, nor does it expressly and unambiguously authorize a court to review the award for legal or other substantive error. Id. at 518-519. PRACTICE TIP: Contractors and developers seeking expanded judicial review of the award should include language in their contracts stating that the arbitrators do not have the power to commit errors of law, that the award can be vacated for such errors, and that arbitration is to be governed by the California Arbitration Act.

Authored By:

Robert Sturgeon

 

Source: http://feeds.lexblog.com/~r/ConstructionInfrastructureLawBlog/~3/uJ7qURQqi8c/

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By Edward Lozowicki and Robyn Christo

In 2009, the California legislature amended Section 143 of the Streets and Highways Code and greatly expanded availability of the public-private partnership ("P3") as a mechanism to finance transportation infrastructure projects. In early 2010, under the authority of the newly amended Section 143, the California Department of Transportation ("CalTrans") began to implement part of the Presidio Parkway Project ("Project") as a P3.
 

The two-phase Project involves replacement of the 75-year-old, seismically-deficient southern approach to the Golden Gate Bridge (also known as Doyle Drive). Phase I (which is currently underway) will be delivered via a traditional design-bid-build model. Phase II, however, is set to be financed and constructed through a P3 contract between CalTrans and its selected bidder, Golden Link Partners.

The process of implementing Phase II as a P3 was attacked on November 2, 2010, when Professional Engineers in California Government (“PECG”) (a union representing state-employed engineers and other professionals) challenged the P3 as violating various provisions of Section 143.

PECG’s combined petition for writ of mandate and complaint for declaratory and injunctive relief was dismissed at the trial level and PECG appealed. The appeal was expedited (so as not to delay the Project or interfere with CalTrans’ negotiated rights of entry on surrounding federal land) and, on August 8, 2011, the Court issued a succinct opinion, in which it rejected all three of PECG’s arguments employing basic canons of statutory construction. Professional Engineers in California Government v. Department of Transportation (2011) 198 Cal.App.4th 17.

PECG first argued that the P3 was invalid because CalTrans was not acting as the “responsible agency” as required by Section 143(f)(1)(A). PECG argued that because CalTrans did not actually perform preliminary (i.e., pre-P3) engineering work on the Project (consultants did) it could not be the responsible agency. The Court employed a “common sense” reading of the statute and determined that CalTrans was only required to be responsible for the work, not to actually perform the work. Furthermore, the Court found it “unreasonable to invalidate an earlier phase of a lengthy, ongoing project because of a change in the law meant to enhance and encourage such projects.”

PECG next argued that the Project did not qualify as a P3 because it would rehabilitate or reconstruct an existing facility and not "supplement an existing facility" as required by Section 143(a)(6). The Court agreed that Section 143 does require a project to supplement existing facilities. Because the Project involves a series of supplemental new improvements to existing facilities, however, it meets this requirement “under any standard definition.”

Finally, PECG argued that in order to be a valid P3, the Project must “require” funding through tolls and user fees. The argument stemmed from language found in Section 143(j)(1), which provides that P3 agreements “shall authorize” the imposition of tolls and user fees and “shall require” that such authorized fees be applied to payment of various costs. The Court quickly rejected this argument, finding that “the clause providing [that] P3 agreements ‘shall require’ [] any toll revenues be used to defray certain costs . . . falls short of requiring the use of tolls and user fees as a necessary funding element or the sole funding source in every P3.”

Comment: This is the first appellate case construing Senate Bill 2X4 (2010) which greatly expanded authority for the state of California and regional transportation agencies to utilize P3 agreements. Most significant is the Court's holding that tolls or user fees are not required. This opens the door for public agencies to use creative financing techniques such as availability payments or lease provisions to pay the P3 entity for the project's costs.

Authored By:
 
Edward Lozowicki and Robyn Christo

Source: http://feeds.lexblog.com/~r/ConstructionInfrastructureLawBlog/~3/W30qC5Etw84/

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By: Michael H. Payne

The Duncan Hunter National Defense Authorization Act of 2009 (Public Law 110-417) was enacted on October 14, 2008. Section 872 of the Act required the development and maintenance of an information system that contains specific information on the integrity and performance of covered Federal agency contractors and grantees. The Federal Awardee Performance and Integrity Information System (“FAPIIS”) was developed to address these requirements. FAPIIS is a distinct application that is accessed through the Past Performance Information System (PPIRS) and is available to federal acquisition professionals for their use in award and responsibility determinations. FAPIIS provides users access to integrity and performance information from the FAPIIS reporting module in the Contractor Performance Assessment Reporting System (CPARS), proceedings information from the Central Contractor Registration (CCR) database, and suspension/disbarment information from the Excluded Parties List system (EPLS). (Past performance information on construction contracts is stored in the Construction Contractor Appraisal Support System “CCASS”).

Contractors need to be aware that FAPIIS includes information relating to a contractor’s past performance reviews, suspensions, debarments, nonresponsibility determinations, and civil, criminal and administrative proceedings that include a contractor's performance of federal, state and local contracts. Since contracting officers will be reviewing this information when they conduct responsibility determinations, contractors need to be certain that the information is accurate. In addition, since some of the information, excluding past performance information, is available for public review, there is a possibility that competitors will look for information to use against a contractor in a bid protest. That provides all the more reason that contractors should be diligent in assuring that inaccurate information does not remain on the system.

The new requirements, that became effective on April 15, 2011, are implemented by FAR 9.104-7 and the clause found at FAR 52.209-9., and further information can be found at the Contractor Performance Appraisal Reporting System (“CPARS”) website, and by reading the FAPIIS User Manual.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on compliance and federal procurement matters.

Source: http://feeds.lexblog.com/~r/FederalConstructionContractingBlog/~3/usDlI0v0SLE/

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You can now purchase the book Tools of the Trade: Modern Marketing for Construction Brands. Modern Marketing for Construction Brands covers all aspects of marketing in the construction industry, from building products and equipment, to A/E/C services and retail, along with specfic examples of construction marketing implementation. Construction professionals will learn useful information as it relates [...]

Source: http://constructionmarketingblog.org/tools-of-the-trade-modern-marketing-for-construction-brands-now-available/

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Guest Post By: Kristen Bradley

The U.S. boasts a huge contract bond market as federal, state and local government agencies all utilize contract bond law to regulate professionals who work in the construction industry. Inevitably, some contracting firms find themselves unable to qualify for these bonds because they do not have the financial stability needed to back them up. This denies them access to working on publicly funded construction projects.

Contractors who cannot find a surety provider that's willing to issue them necessary bonds might complain that contract bond requirements are too strict and difficult to fulfill. Their purpose, however, is to deter unqualified and financially unstable contractors from working on projects for which they might not be qualified. Contractor bonding helps stabilize the industry in a number of legally enforceable ways.

Contract Bond Protection

Contract bonds work to protect the best interests of the project owners and government agencies that fund construction projects, as well as the best interests of the public.

The Surety Information Office explains how crucial surety bonds are to the financial success of the construction industry:

"The use of corporate surety bonds makes it possible for the government to use private contractors for public construction projects under a competitive sealed bid, open competition system where the work is awarded to the lowest responsive bidder. Political influence is not a factor, the government is protected against financial loss if the contractor defaults, and certain laborers, material suppliers and subcontractors have a remedy if they are not paid, all without consequence to the taxpayer."

Bid bonds specifically work to keep the bidding process honest. When a contracting firm submits a bid bond along with a project bid, it makes a legal promise that it won't increase the bid after being selected to work on the project. For example, the city of Philadelphia frequently requires contracting firms to provide a bid bond that's 10% of the total bid amount. If the winning contractor raises the bid after being awarded the project, the city could collect on the bond to gain financial reparation.

Contract Bonds and the Surety Bond Process

Contract bonds function as do other surety bond types. Contractors and contracting firms purchase surety bonds to financially guarantee some aspect of their work. When a surety provider issues a bid bond to a contractor, the bond essentially acts as a legally binding contract among three entities:

1. the principal: the contractor or contracting firm that purchases the bond as a promise that the bid will not be increased
2. the obligee: the project owner that requires the bond to protect itself from potential financial loss
3. the surety: the agency that executes the bond, thus providing a financial guarantee that the contractor won't increase the bid

Although bid bonds are often used for publicly funded projects managed by the government, private project owners can also choose to take advantage of their protective benefits.

How Surety Bonds Affect the Bidding Process

When government agencies or other project owners require bid bonds, the contracting firm must purchase a bid bond and submit it along with its original bid. Bid bonds may not be purchased after a bid has been submitted, and surety providers will not execute a bid bond after a contracting firm has already submitted its formal bid to a project owner.

Contracting firms that want to bid on high scale public construction projects must have a high bonding capacity. Contracting firms can take a few approaches to increase their bonding capacities, such as

• making more investments
• taking their net cash position down to zero
• excluding net pension liabilities and construction credits in residential development co-ops

Although the effort required to secure bid bonds for high scale projects might seem unnecessary to some contractors, the stability they give the construction industry is irreplaceable. 

This article was provided by SuretyBonds.com, a nationwide surety bond producer.
SuretyBonds.com offers surety bond education to contractors who need to purchase contract bonds. The agency believes that contractors should understand the bonding market so they are prepared for the surety bond application process. 

Source: http://feeds.lexblog.com/~r/FederalConstructionContractingBlog/~3/riUh0b-Qyps/

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