In the construction business, major projects are almost always bonded. A bond secures the contracts for everyone associated with the project. This applies to insurance companies, subcontractors, suppliers, financial institutions, lessors, lessees, etc.
When the developer purchases a bond, all the contracts connected to the project become part of that bond. The bond assures that all promises, conditions, payments and performances will be honored. If they are not honored, the bonding company will step in and execute the terms of all the contracts. The bonding company can then go after the developer to recover their expenses.
In most cases, when a developer has a bond on a project, the sub-contractors on that project must also purchase a bond for their share of the project. For example, if a developer is constructing a building, the developer will have a bond for the whole project, and every subcontractor _ the cement company, the steel company, the electrical company, etc. _ will each have a bond for their part of the project.
Bonding companies require that the developer be qualified for the bond. The developer must have experience in the field. And they must have sufficient financial strength to cover the cost of the entire project. This includes the attachments, addendums, rental payments, maintenance and repairs. The financial statements show financial strength of the developer, and corporate resumes show the experience necessary to successfully complete the project. Bonds cannot be purchased if the developer is not qualified.
A bonding company requires the developer’s corporate officers to personally indemnify, or guarantee, the face value of the bond. This includes the spouses, as well as the corporate officers. This means the bonding company can claim their personal property, should the project fail.
The Jordanville Wind Project is approximately a million dollars per megawatt, $136 million dollars. The towns should require a Performance, Payment and Maintenance bond to secure the completion of this project, payments to the taxing entities, and payments to leaseholders.
Failure to require a bond could result in lawsuits against the towns. For example, should the developer fail to pay a subcontractor, the subcontractor could name the towns, and even the leaseholders, in a suit. With a bond in place, the bonding company would cover any defaults, and go after the developer for payment. This would protect the towns and leaseholders from costly lawsuits.
Mary Lenz
Jordanville
URL to article: https://www.wind-watch.org/news/2006/12/01/project-should-be-bonded/