still be charged for the bond based on the full
contract value, and it is underwritten based
on the full contract value. “Most of the time, if
you have a bond claim on a construction proj-
ect, it’s not going to be the full amount,” he
says. “Most of the time, if you have a loss, it’s
going to be a partial loss. For example, on a $1
million project with DOT, your bond would
have $500,000 on it.”
A prime example of this type of scenario is
an undertaking that involved the construc-
tion of several Alaska-class ferries. The proj-
ect was for approximately $104 million to
build two of the ferries. “We negotiated with
the ship builder, Vigor, to bond the project at
$50 million, as there would never really be
$104 million at risk at any one time,” Jordan
explains. “The risk was one vessel at a time.”
However, various entities have different
bonding requirements, depending on the
type and size of the project. The Miller Act
mandates that federal contracts in excess of
$100,000 require contractors to post perfor-
mance/payment bonds to protect tax-payer
dollars, according to Pobieglo. Many state
and city governments have adopted simi-
lar requirements. It’s fairly common for the
$100,000 threshold to be used as the point
of whether performance/payment bonds are
required. But some private entities require
performance/payment bonds on almost any
size contract—even one as small as $25,000.
There are a number of interesting trends unfolding in Alaska involving the use of bonds.
For instance, bonding is relatively easy to
get now for qualified contractors, according to Pobieglo. The market is very soft and
very competitive among bonding companies.
“They are being pretty aggressive with their
rates and the capacity [amount of bonding
they are willing to give],” he says. “Part of it
is that the surety companies have gotten very
efficient at underwriting and mitigating losses. At least here in Alaska, the pool of potential good, well-run construction companies
is not big. The surety companies want to work
with those guys; they’re profitable for them.”
Pobieglo has also noticed an increase in
subcontractor bonds. More general contractors have subcontractor bonding policies, which is typically not something that
is required by the project owners. “It looks
good to their bonding company, and it also
mitigates the risk of subcontractor failure—
which could put the general contactor’s job
at jeopardy,” he says. Like Pobieglo, Remick
says the surety industry has been profitable
in recent years and market conditions are
doing very well now. “The surety market is
strong, and there is ample capacity available
for qualified contractors,” he says.
As another trend, the demand for surety
credit has lessened with the overall slowing of Alaska’s economy. Still, Remick says
he sees a slight uptick in demand for surety
bonds in private work; one that could be
driven by project owners who want security
in a more challenging market as well as the
lending requirements of banks.
There has also been a trend of evolving
alternative procurement methods in the
industry, including design/build, government set-aside work, request for proposal/
short-list, and public-private partnership.
“Surety companies have adapted to the
changing conditions in the market and are
generally prepared to underwrite any or all
The Miller Act mandates that federal contracts in excess of $100,000 require contractors to post
performance/payment bonds to protect tax-payer dollars. Many state and city governments have
adopted similar requirements. It’s fairly common for the $100,000 threshold to be used as the
point of whether performance/payment bonds are required.
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