03/25/11

History of Bonding

Suretyship is an ancient practice, with the first documentation contained in the Code of Hammurabi, circa 1790 BC, which outlined requirements for individuals to act as surety. The practice of an individual co-guaranteeing the obligations of another for a pre-determined fee spread throughout the Fertile Crescent and is reflected in the early legal codes of Carthage, Persia, Assyria, Rome, Babylon the ancient Hebrews and as far West as the British Isles.  The oldest surviving written surety contract is a contract of financial guarantee executed in Babylonia in 670 BC. Modern principles of suretyship have their roots in Roman jurisprudence enacted starting around 150 AD. 

 

In the 19th century contractor defaults on public works placed an escalating burden on taxpayers, and in response Congress passed the Heard Act in 1894 to authorize the use of corporate surety bonds to secure all federally funded projects, since liens cannot be placed against these by unpaid subs or suppliers. More recently, the Miller Act was passed in 1935 and this is the current authority mandating surety bonds on federal public works projects. Under this legislation performance bonds are required on public works contracts in excess of $100,000 and payment protect, preferably a payment bond, on contracts above $25,000. Most states and local jurisdictions have enacted similar legislation requiring surety bonds on public works which are referred to as Little Miller Acts. For example, the State of Florida recently increased the minimum level above which a performance bond is required from $100,000 to $500,000. 

 

The surety industry is in a period of high loss activity, and this has resulted in a reduction in the number of surety companies through failures and mergers, which in turn has reduced industry capacity.  Since bonding is a requirement to access public works, part of an effective business plan is to have a well-qualified bond agent who knows how to maximize your bonding capacity. With over 30 years experience including both company underwriting positions and as an agent interacting with many bonding companies, I have the skills necessary to help my clients navigate tough conditions in the bond market. I can be reached at 503-445-8404 or jewald@epbb.com.