Virus impacting construction bonds (sureties and bond producers seek emergency orders)

Social Distancing, Shelter Orders Impede Construction Bonds
Sureties and bond producers seek emergency orders to allow E-signing, waive notarization

Capitol Hill in Washington, D.C. Photo: Bjoertvedt via Wikimedia Commons

The surety industry is asking federal, state and local officials to take emergency action to update decades-old surety rules requiring stamped notarizations and ink signatures that the Covid-19 pandemic has made impossible or more difficult while social distancing and shelter rules are in place.

The industry seeks permission to use electronic signatures without notarization of bond documents.

Otherwise, the sureties and bond producers claim, the interruption in the normal issuance of sureties required for most public works and many private projects, could hold up construction projects—and inflict further injury on the economy.

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The Surety and Fidelity Association of America, the trade association of sureties, and the National Association of Surety Bond Producers, representing brokers and agents, are asking government officials to act quickly.

“Pandemic shelter-in-place requirements,” the two associations said in a joint statement, “make traditional signatures and notary requirements unworkable.”

In a letter to Congressional leaders, the two associations pointed out that many federal agencies require surety documents to have “wet ink signatures” on surety bonds and embossed corporate seals on original, printed documents.

Stay-at-home orders and adherence to health directives and guidelines make it virtually impossible for bond producers, acting as attorneys-in-fact for surety companies, and their contractor or commercial business clients to sign the surety documents in person.”

Unlike other federal agencies, the General Services Administration does accept electronic digital signature technology. An Office of Management and Budget memo issued last month encouraged streamlining of approval processes for critical services.

Remote online notarization isn’t a workable alternative, the associations argue, because it has not been approved in many states or become widely used. Where it is approved, it requires prior certification of the notary.

“A majority of these construction surety bonds are required for infrastructure projects directly related to health, safety and the growth of our economy,” says SFAA chief executive Lee Covington. “It is imperative to adopt a solution immediately for work on these critical projects to begin and continue, while maintaining important protections for small business construction firms, workers and taxpayers.”

Commercial surety bonds are used in other occupations. For example, utility bonds ensure that utilities will be paid on time, license and permit bonds guarantee that regulations and rules are observed and public official bonds provide security in case a public official violates the public trust in handling money or private information.

To some extent, says NASBP chief executive Mark McCallum, “Commercial surety is further ahead than contract surety because some commercial surety is more transactional in nature, where the same transaction is performed over and over with more volume.”

One of the most recent examples of moving a commercial surety type into an electronic system, adds McCallum, was a result of the mortgage and financial crisis of 2008 and 2009. An electronic system set up for those bonds has been adopted in many states.


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