Secret #94: Reading the Tea Leaves

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The gypsy gazes intently at the tea leaves. For those who understand their meaning, the future is revealed!

tea_leavesWhat if you could predict the future in your Surety Bond activities? In this article we will explain how you can!

When a contractor or agent contacts us for bid and performance bonds, one of the first areas we review are the written bonding requirements. They tell us which bonding companies can be used for the opportunity, the ones that will fit. By reviewing the written requirements we can predict if our surety is headed for approval or rejection.

These tea leaves are important! When a bond is approved by a surety, and the surety is rejected by the obligee, the producer is faced with lost commissions, lost time, embarrassment, a disappointed client, and maybe a lawsuit!

So what should you look for?

Bonding is usually found near the insurance specifications. Here are some of the common requirements and what you need to know about them:

Circular 570
This document is published by the Federal Treasury Department, and is often referred to as the “T-list” (T=Treasury). The current edition is easy to look up on the internet.

The T-list names the bonding companies approved by the Treasury Department to issue bonds on federal projects, and the maximum amount permitted for each bond. For federal projects, you must use a surety T-listed for an adequate amount. Most of the major bonding companies are T-listed.

In addition to the T-list being a mandatory requirement on federal projects, other obligees may choose to require a T-listed surety. They want to take advantage of the screening process performed by the treasury department analysts.

Two things to keep in mind:

  • If a T-listed surety fails to perform, the treasury department will not care or be responsible.
  • There are perfectly good sureties that may not have applied for T-list approval. So not being on the list simply means… they’re not on the list. It is not necessarily an indication of weakness or defect.

One final point, a requirement that the surety must be “certified by the federal government” does not literally mean the issuance of a certificate. It simply means “T-listed.” The government refers to sureties on the treasury list as Certified Companies.

A Rated
This, of course, refers to an A.M. Best rating. It may say A or B is required along with a minimum strength indication.  This is a frequently used criteria, despite the fact that insurers have gone under while enjoying a favorable Best rating. 

Tip: If your surety does not meet the stated requirement, the credentials of their Best rated reinsurer can be brought to the forefront by issuing a cut-through rider. This makes the reinsurer responsible as a primary carrier. A fee may be charged, and not all reinsurers are willing accept the exposure. But sometimes it can be the solution.

“Authorized to do business in… “
This is also a common requirement. It means licensed by the local state insurance department. It is worth knowing about, because such licensing may not be in place.

When there are no written bonding requirements..
Yippeee!??   Maybe not.

Be cautious if there is nothing saying a bond is mandatory. Some obligees want the assurance of knowing the principal is bondable, but are not willing to actually pay for a bond. You don’t need any more practice, right?

Corporate Surety or Individual suretytea-cup
Not all sureties are corporations. Some public bodies accept either type of surety. There are others that only accept a corporate surety. A private obligee may have the latitude to accept both. Read those tea leaves!

Conclusion: These factors enable you to predict the future. If you develop an account using an insurer or surety that does not meet the requirements, you are doomed to a rejection and the ensuing pain.

Understanding the written requirements can assure that you deliver an appropriate product. It’s not magic. It’s just good business!

NOTE: This article is intended for entertainment purposes ONLY.  We are not attorneys and are not offering legal advice. “Fugetaboutit!”

Bid, Performance, Site, Subdivision Bonds: Call us!  856-304-7348

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