• Pick an Experienced Provider. Professional surety companies with an extensive history of providing bonds can be a great partner for your business. Not only can they make the bonding process itself a smooth one with a well established underwriting routine, but they can also provide you with a great assessment of your business and its prospects. Check with the National Association of Surety Bond Producers to ensure that your potential surety company has a proven track record of success.

• Make Sure They Understand your Industry. Your surety company should have a well educated and experienced understanding of not just surety bonds, but the construction industry in general. Their awareness of the market will help determine the types of products they provide and the options they present.

• Understand the credit and underwriting process. Make sure that the underwriting standards and the credit criteria against which you will be evaluated is clear and easily understood. Your financial history is a critical component of the bonding process and it's exceptionally important that you're able to understand and follow the approvals process.

• Evaluate Industry Affiliations. Investigate what industry organizations and affiliations your potential surety partner maintains. The National Association of Surety Bond Producers is comprised of more than 5,000 surety agents and brokers and provides education and awareness. The Surety & Fidelity Association of America also maintains a large membership and is a well known organization in the industry.

• Go with Your Gut. Of critical importance is your own instinct. Trust yourself and, if something seems amiss, go elsewhere immediately. Surety bonds are a large investment and you need to feel that whatever company you choose is going to advocate for you and take a personal interest in your success.

This guest post was provided by Kevin Kaiser, a principal at SuretyBonds.com. AC-Lawyers in no way endorses the company but rather thought they provide relevant and useful information. If you want more information regarding surety bonds, visit their Surety Bond Education Program.

Typically on construction projects, design related risks are covered by the architect and engineer's professional liability policies, which many times have low and "wasting" policy limits written on claims-made forms. Professional policies typically contain exclusions for claims arising out of "construction means and methods." The same holds true for construction manager professional liability insurance which construction managers obtain to cover claims related to or arising out of construction management supervisory services. The CGL insurance policy (in combination with excess and umbrella insurance) in contrast, in many instances, provides the highest available limits of liability and therefore, is critical third-party liability coverage for any construction project.

Whether during the course of construction or after construction operations are completed, subcontractors, trade contractors and construction mangers generally provide CGL insurance to address property damage or bodily injury caused by "occurrences" arising out of their work. Some version of standard ISO (Insurance Services Office) CGL occurrence policy form generally will be used and is generally specified and required in the Contract Documents, whether it is provided by an individual policy or by a project policy, an OCIP (Owner-Controlled Insurance Program) or CCIP (Contractor-Controlled Insurance Program).

The basic ISO CGL occurrence form does not exclude coverage for claims or suits arising out of professional services, particularly in the construction context however, this coverage is excluded by addition of exclusionary endorsements. Several ISO endorsements are used by underwriters to address "professional services" and attendant design risks.

• ISO form CG 22 43: Before 1990 the standard professional services exclusion on contractors CGL policies was provided on ISO form CG 22 43, which excludes from coverage bodily injury or property damage "arising out of the rendering or failure to render any professional services by or for the named insured, including: "1. The preparation or approval of maps, plans, opinions, reports, surveys, designs or specifications and 2. Supervisory, inspection or engineering services." In Harbor Insurance Co. v. Omni Construction, 912 F.2d 1520 (D.C. Circ. 1990) the issue before the court was the impact of the prime contractor Omni's subcontracted sheeting and shoring work on an adjacent property owner which claimed that the excavation resulted in settlement to its building. The court, although it was presented with evidence that the sheeting and shoring is an accepted component of a contractor's "construction means and methods" held that the design of the system constituted a "professional service" and that no coverage would apply because "the loss was caused by the rendition of professional services, viz., the engineering of the sheeting and shoring system." Harbor, 912 F.2d at 1525.

• CG 22 79. Following the Harbor decision ISO issued a new professional services exclusion, CG 22 79, with the direction that this (as opposed to the CG 22 43) be used for construction contractors. CG 22 79 contains the following clarification in its final section:

"Professional services do not include services within construction means, methods, techniques, sequences and procedures employed by you in connection with your operations in your capacity as th construction contractor."

Thus, incidental design services (preparing or reviewing shop drawings for example) are not excluded by CG 22 79 when provided by a covered construction contractor. Note that the ConsensusDOCs 200 series standard agreement and general conditions between owner and contractor at section 3.15 provide that a contractor "may be required to procure professional services in order to carry out its responsibilities for construction means, methods, techniques, sequences and procedures for such services specifically called for by the Contract Documents." The use of such language would support that incidental professional services needed to carry out construction mean and methods are not excluded by CG 22 79 exclusion.

• CG 22 80. The ISO also issued the CG 22 80 endorsement which is less restrictive than the CG 22 79, because it contains the following concluding caveat:

"This insurance does not apply to "bodily injury," "property damage," "personal injury" or "advertising injury" arising out of the rendering of or failure to render any professional services by you, but only with respect to your providing engineering, architectural or surveying services in your capacity as an engineer, architect or surveyor . . .."

This exclusion does not apply to your operations in connection with construction work performed by you or on your behalf."

In other words, as long as the insured contractor is performing construction work, the fact that this work includes a design component whether incidental or broader the exclusion does not apply. Therefore, the exclusion is the least restrictive form of the ISO professional services exclusion (and typically recommended for use in the design-build context.

• CG 22 34. In addition, ISO endorsement CG 22 34 excludes coverage for, among other things, "[i]nspection, supervision, quality control, architectural or engineering activities done by or for you on a project on which you serve as construction manager." The exclusion, however, is followed by an exception providing that the construction manager retains coverage for "construction or demolition work" performed by or for the CM, its employees or subcontractors.

Therefore, which ISO endorsement is attached to a CGL policy form can be significant in the event of a "design related" claim. As part of the upfront analysis of potential design risk, careful attention must be paid to the CGL policy form and the selected ISO professional services endorsement, if one is used. In the event the CGL coverage is insufficient, specialty coverage such as Contractor's Professional Protective Insurance ("CPPI") or construction manager professional liability insurance may be available to pick up the contractor or construction manager design or other professional risk outside the traditional coverage.

The Court of Appeals ruled that the Trusts' liens against the bond and retainage were improper. The Court of Appeals was bound by the Washington State Supreme Court's decision in I.B. E.W., Local No. 46 v. Trig Electric Construction Company, 142 Wn.2d 431, 13 P.3d 622 (2000), which held that trust funds, such as those in the Leo Finnegan case, that were created under federal law and governed by the Employee Retirement Income Security Act (ERISA), were governed by federal law that preempted the Trusts' right to recover against the payment bond and retention under Washington state law.

The case demonstrates that until the Trig Electric case is overruled by the Washington Supreme Court, lower Washington courts will hold that trust fund liens against the payment bond and retainage are invalid.

The case arose out of a project for the City of Vancouver.  The general contractor, Berschauer Phillips, subcontracted with Dynamic International, to furnish labor and materials to the project.  Dynamic then subcontracted with Campbell Crane to supply and operate cranes on the project.  Campbell's invoices charged only an hourly rate for crane services and did not differentiate between labor and equipment rental.

Campbell was not paid by Dynamic and it filed a timely notice of lien against Berschauer's bond and the City's retained percentage.  However, Campbell never provided a pre-lien notice to Berschauer.  Berschauer argued that Campbell's lien was invalid because it did not provide the pre-lien notice.  The retainage statute requires a pre-lien notice for providers of materials, supplies or equipment to a subcontractor.  The bond statute requires the pre-lien notice for providers of materials, supplies or provisions to a subcontractor.

The Court of Appeals ruled that Campbell was not required to give the pre-lien notice under both statutes even though it provided equipment as well as labor.  The Court decided that the pre-lien notice was not required for the equipment supplied because Campbell used the cranes as tools incidental to the specialized crane operation labor and its invoices did not segregate labor and equipment provided to the project. 

A complete copy of the Court's opinion can be found here.  Despite this ruling, a prudent sub-tier subcontractor that provides materials or equipment on a public project should nonetheless provide the pre-lien notice in order to ensure that its lien rights are preserved.

Bellingham argued that Matia's lawsuit was barred because Matia did not notify the City before it filed its lawsuit as required by a City ordinance and state statute.  Cities can enact ordinances providing for claim filing requirements but they cannot be more restrictive than the authorizing state statute.  The authorizing state statute, RCW 4.96.010, provides that the pre-lawsuit claim filing requirements apply only to tort claims (i.e. personal injury, negligence, etc.).  Therefore, because Matia's claim was for breach of contract, and not tort, it was not required to comply with the pre-lawsuit claim filing requirements of the City and the state statute. 

Although the Division One Court of Appeals' ruling in this case may seem self apparent, the Division Three Court of Appeals reached the opposite result in a case decided in 2004. 

During the course of the project, Beco alleged that J-U-B improperly tested asphalt with the intent of promoting failed tests, unreasonably shut down the project causing delays to Beco, and unreasonably delayed the commencement of the project.  Beco alleged breach of contract, negligence, and intentional interference with contract claims against J-U-B.  Beco's breach of contract claim and negligence claims against Beco were dismissed early in the case, and the only issue on appeal was whether Beco could make a claim for intentional interference against J-U-B.

The Idaho Supreme Court reasoned that Beco could not make a claim against J-U-B for intentional interference.  In Idaho, a party cannot make a claim for intentional interference against another party to the same contract.  The cause of action is only applicable when a third party interferes with one party's contract with another.  In this case, J-U-B was acting as an agent of the City on the project because it was designated as the owner's representative and tasked with administering the general contract.  The Court reasoned that because J-U-B was the City's agent, and the actions that were the basis of Beco's claims occurred during J-U-B's administration of the contract, J-U-B was not a third party to the general contract, and therefore, Beco could not make a claim against J-U-B for intentional interference. 

The case represents the difficult task that general contractors have in making claims against the design professionals on projects.  Because the contractor does not have a contract with the design professional, it cannot allege breach of contract against the design professional.  In this case, Beco's sole remedy was to sue the City for breach of contract due to the actions caused by its agent, J-U-B. 

Court opinion:  Beco Constr. Co. v. J-U-B Engineers, Inc.

The Board held that the contractor was entitled to the consulting costs incurred in preparing the request for equitable adjustment, but because the consultant's work had not been monitored and because the consultant's services were categorized under generalized terms such as "schedule analysis," "developing issue files," "summarized findings/developed schedule REA" and "finalized REA," the Board determined it was not possible to discern the level of detail of work that was actually being performed by any given person on a given day and therefore, reduced the contractor's costs.

Government contractors, when faced with whether to present a request for equitable adjustment or file a certified claim, should weigh the recovery of claim preparation costs, but non‑recovery of interest in a request for equitable adjustment presentation vs. making a claim pursuant to which interest is recoverable under the CDA, but claim preparation costs are not.  To prevail, however, on the request for equitable adjustment, the contractor's burden is to show that the "genuine purpose" in incurring the attorneys' fees and costs was to further the negotiation process rather than to simply disguise a claim.  Find the case here

The Supreme Court reversed, and emphasized that, at most, the City's actions constituted "equivocal" evidence of waiver. "Equivocal conduct by its definition cannot be unequivocal" as required by Mike M. Johnson. Because the City on occasion expressly asserted it was not waiving its contractual defenses no juror could find the City unequivocally did the exact opposite. The Court further affirmed Mike M. Johnson and held continued settlement negotiations will not establish waiver, as such a finding would frustrate the settlement process.

The Court of Appeals disagreed and held that because McDonalds placed Keystone in charge of constructing its restaurant, Keystone was McDonalds' construction agent. McDonalds also argued that the extra work was not lienable because because it was not within the "contract price" as defined in RCW 60.04.011(2). The statue defines contract price as "the amount agreed upon by the contracting parties, or if no amount is agreed upon, then the customary and reasonable charge therefor." McDonalds argued the extra work sought by Henifin was not a part of the agreed upon price. The Court of Appeals held that the extra work was lienable because Keystone, McDonalds' construction agent, authorized the change orders.