Increased Surety Capacity
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Problem / Opportunity:
The vast majority of federal and state government contracts require Federal
Prime contractors to subcontract on average 10-25% of the contracts to small
businesses. However, most small business construction companies do not
have the balance sheet strength necessary to obtain credit and construction
surety bonds that are required for government projects.
Iron Eagle Strategic Plan:
Iron Eagle is able to acquire synergistic small business
construction companies and increase their capacity
to qualify for greater dollar amounts of surety bonds
on both a per instance and aggregate basis. In
addition, Iron Eagle has a partnership with Lockton corporation,
the world’s largest, privately owned, independent
insurance broker and one of the largest providers of
surety contracts. This will enable Iron Eagle to provide
its portfolio companies with greater levels of surety.
Result:
Significantly enhances Iron Eagle’s ability to win and complete government
and private construction projects. Having the right amount of surety bondings
is a significant competitive advantage in winning contracts.
Construction Surety Bonds:
Most government and many private construction projects require a surety bond. This
is similar to an insurance policy whereby the company providing the surety bond
guarantees that the construction company will fulfill its obligations to the
original developer. In the event that the obligations are not met, the surety
bond provider will pay the developer any losses due to the failed obligations
of the construction company.
A surety bond is a contract among at least three parties:
• The obligee - the party who is the recipient of an obligation,
• The principal - the primary party who will be performing the contractual
obligation,
• The surety - who assures the obligee that the principal can perform the
task
Contract Bonds:
Contract bonds are used very frequently in the construction
industry, is a guarantee from a Surety to a project's
owner (Obligee) that a general contractor (Principal)
will adhere to the provisions of the terms of the contract.
Examples of these types of bonds include:
• Bid bond: Guarantee that a contractor will enter
into a contract
• Payment bond: Guarantee that a contractor will
pay for services and materials
• Performance bond: Guarantee that a contractor
will perform the work as specified by the owner, and
•
Maintenance bond: Guarantee that a contractor will
provide facility repair and upkeep for a specified
period of time.
The Miller Act:
Under the Miller Act, payment and performance bonds are
required for general contractors on all U.S. federal
government construction projects where the contract price
exceeds $100,000.00.
In the United States, the law requiring contract surety
bonds on federal construction projects is known as the
Miller Act (40 U.S.C. Section 3131 to 3134). This law
requires a contractor on a federal project to post two
bonds: a performance bond and a labor and material payment
bond. A corporate surety company issuing these bonds
must be listed as a qualified surety on the Treasury
List, which the U.S. Department of the Treasury issues
each year.
The Miller Act provides that, before
a contract that exceeds $100,000 in amount for the construction,
alteration, or repair of any building or public work
of the United States is awarded to any person, that person
shall furnish the federal government with the following:
- A performance bond in an amount that the contracting
officer regards as adequate for the protection of the
federal government.
- A separate payment bond for the protection of suppliers
of labor and materials. The amount of the payment bond
shall be equal to the total amount payable by the terms
of the contract unless the contracting officer awarding
the contract makes a written determination supported
by specific findings that a payment bond in that amount
is impractical, in which case the amount of the payment
bond shall be set by the contracting officer. The amount
of the payment bond shall not be less than the amount
of the performance bond.
The Miller Act payment bond covers subcontractors
and suppliers of material who have direct contracts with
the prime contractor. These are called first-tier claimants.
Subcontractors and material suppliers who have contracts
with a subcontractor, but not those who have contracts
with a supplier, are also covered and are called second-tier
claimants. Anyone further down the contract chain is
considered too remote and cannot assert a claim against
a Miller Act payment bond posted by the contractor.
Many states in the U.S. have adapted
the Miller Act for use at the state level. These state
statutes may be referred to as, "Little Miller Acts."
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