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Challenge and payment bonds.(TRADELINE)
The boom days have subsided. The construction sector is facing dark times with the downturn in both the residential and commercial real estate markets. For credit managers operating in the industry, securing payment is becoming a parainount issue, meaning mechanic's liens and other options like payment bonds are playing more pivotal roles in the decision making process.
In the recent NACM teleconference "Payment Bonds," Jim Fullerton, Esq., president of Fullerton & Knowles P.C., presented attendees with vital information on payment bonds, the Federal Miller Act, the State Miller Acts and private bonds. Fullerton's overview delved into the do's and don'ts of the bond process, while clarifying the roles each party plays in a project and what their bond rights are.
First and foremost was setting an understanding of what a payment bond is: a promise to pay or perform some sort of contractual obligation. In a payment bond, a surety provides security that all persons supplying labor and material to the project will be paid. It ensures that subcontractors and suppliers will be paid so that the obligee will not be held responsible for payments due if the principal fails to pay.
"That's not a security interest," stated Fullerton. "It's another unsecured promise to pay that gives you the right to secure payment from another debtor."
Fullerton added that one of the biggest challenges in the construction sector today is the health of bonding companies and of sureties. During the last housing downturn, Fullerton said that there were ...
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...2) known as the Little Miller Act was enacted to protect subcontractors...was modeled after the federal Miller Act. "The Little Miller Act works in conjunction with Sect. 29-6-250 to require payment bonds for the protection of subcontractors...
Source: HighBeam Research, Challenge and payment bonds.(TRADELINE)