Indictment Issued In Government Contracts Surety Bonding Case

Small government construction contractors often have difficulty obtaining required bonding–which sometimes causes them to turn to their subcontractors for bonding assistance.

But what if a subcontractor cannot (or will not) provide the necessary bonding assistance?  According to a recent federal grand jury indictment, one California man took advantage of these situations by offering fraudulent bonds–at higher premiums–to government contractors.  The man now faces the possibility of more than 30 years in prison.

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Subcontractor’s Provision of Bonds OK with GAO—But Watch Out for Affiliation

Small prime contractors often have difficulty securing necessary bid, performance and payment bonds for federal government contracts–especially in the construction industry, where payment and performance bonds are typically required.  Not surprisingly, small primes often turn to their larger subs to secure the necessary bonding.

A small prime’s reliance on its subcontractor for bonding was recently put to the test in a GAO bid protest.  Fortunately for small primes everywhere, in Shaka, Inc., B-405552 (Nov. 14, 2011), the GAO held that the subcontractor’s role in the bond process did not render the bond defective.  But small primes and their large subcontractors shouldn’t pop the champagne for a celebration, because subcontractor bonding assistance can still increase the risk of ostensible subcontractor affiliation.

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Who Are You? Ambiguity as to Identity of Bond Principal Costs Joint Venture a Contract

“Who Are You?” asks Pete Townshend, the songwriter behind the tune a later generation would come to know as “The CSI Song.”  It’s a good question when it comes to self-reflection (or catching criminals), but it’s not so great when the government is asking the same thing in reference to a bid bond.

An ambiguous bid bond can cost an otherwise successful offeror to lose a contract.  And as the GAO’s decision in BW JV1, LLC, B-401841 (Dec. 4, 2009) demonstrates, it is especially important for offerors submitting as joint venturers or in other teaming arrangements to carefully consider their bid bond arrangements to eliminate any potential ambiguities.

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