Chris Cheatham provides an overview of the intersection between suretyship and green building. If you have ever wondered what exactly is a surety, or how a surety fits into the green building industry, this is the presentation for you.
If you would like to learn more about this or other green building topics, please visit www.greenbuildinglawupdate.com or email Chris at chris@greenbuildinglawupdate.com.
Thanks for viewing.
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Suretyship and Green Building
1. Suretyship and
Green Building
Chris Cheatham, LEED AP, Esq.
www.greenbuildinglawupdate.com
2. Suretyship and Green Building
What will you learn?
1. Surety enters into three-party
contract with owner, contractor
2. Performance bond guarantees
contractor will build to plans
3. Bonds can be used to enforce
green building requirements
Chris Cheatham - www.greenbuildinglawupdate.com
3. [TITLE OF PRESENTATION]
Suretyship and Green Building
Agenda
• Suretyship 101
• Bonds in Construction
• A Surety’s Role in Green Building
• Bonds as Enforcement Mechanism
Chris Cheatham - www.greenbuildinglawupdate.com
4. [TITLE OF PRESENTATION]
Suretyship 101
Mandatory, unintelligible definition:
Suretyship is a “contractual relationship
whereby one person engages to be
answerable for the debt or default of
another.”
-Sterns, The Law of Suretyship 1 (1951)
Chris Cheatham - www.greenbuildinglawupdate.com
5. [TITLE OF PRESENTATION]
Suretyship 101
Three parties - tripartite agreement:
Creditor
Debtor Surety
Chris Cheatham - www.greenbuildinglawupdate.com
6. [TITLE OF PRESENTATION]
Suretyship 101
Two key surety rules:
(1) Debtor is responsible to satisfy
obligation to pay or perform
Creditor
Debtor Surety
Chris Cheatham - www.greenbuildinglawupdate.com
7. [TITLE OF PRESENTATION]
Suretyship 101
But what if Debtor fails to pay or
perform?
Creditor
Debtor Surety
Chris Cheatham - www.greenbuildinglawupdate.com
8. [TITLE OF PRESENTATION]
Suretyship 101
Two key surety rules:
(2) If debtor fails to pay or perform
and another party, who has
previously promised to pay debt or
perform obligation satisfies the debt,
then performing party can receive
reimbursement for payment.
Chris Cheatham - www.greenbuildinglawupdate.com
9. [TITLE OF PRESENTATION]
Suretyship and Green Building
Suretyship 101
Two key surety rules:
(2) Debtor fails, Surety performs,
Surety reimbursed by Debtor
Creditor
Debtor Surety
Chris Cheatham - www.greenbuildinglawupdate.com
10. [TITLE OF PRESENTATION]
Suretyship and Green Building
Suretyship 101
What does surety get?
1. Premium paid by debtor
2. Debtor’s duty of reimbursement
(indemnification agreement)
Chris Cheatham - www.greenbuildinglawupdate.com
11. [TITLE BondsPRESENTATION]
OF in Construction
Surety and Construction:
Developer Guy
Contractor Guy Surety Guy
Chris Cheatham - www.greenbuildinglawupdate.com
12. [TITLE BondsPRESENTATION]
OF in Construction
Surety and Construction:
surety is
answerable,
Developer Guy
through bond,
for debt or
default of
contractor to
owner.
Contractor Guy Surety Guy
Chris Cheatham - www.greenbuildinglawupdate.com
13. [TITLE BondsPRESENTATION]
OF in Construction
Three types of surety bonds for
construction:
1. Payment Bond
2. Bid Bond
3. Performance Bond
Chris Cheatham - www.greenbuildinglawupdate.com
14. [TITLE BondsPRESENTATION]
OF in Construction
Payment Bond
• Guarantees owner that
subcontractors will be paid monies
due by contractor
Bid Bond
• Guarantees owner that contractor
will honor bid and sign contract
Chris Cheatham - www.greenbuildinglawupdate.com
15. [TITLE BondsPRESENTATION]
OF in Construction
Performance Bond
• Surety guarantees satisfactory
completion of project by contractor
• Contractor must build according to
plans and specifications
• Otherwise surety must (1) complete
project or (2) allow owner to
complete, surety pays costs
Chris Cheatham - www.greenbuildinglawupdate.com
16. [TITLE OFRole in Green Building
A Surety’s PRESENTATION]
1. Green Roof Leaks
3. Surety Pays
2. Contractor Developer or
Defaults Rebuilds
Chris Cheatham - www.greenbuildinglawupdate.com
17. [TITLE OFRole in Green Building
A Surety’s PRESENTATION]
Fact: Sureties are already bonding
green building projects
Fact: Sureties are just now assessing
inherent green building project risks
Fact: No major surety has specific green
building bond
Chris Cheatham - www.greenbuildinglawupdate.com
18. [TITLE OFRole in Green Building
A Surety’s PRESENTATION]
How Underwriters Can Assess Surety’s Risk
in Green Building:
1. Is it a green building project?
2. Did contractor guarantee certification?
3. What green strategies involved?
4. What green regulations apply?
5. Is compliance achievable?
Chris Cheatham - www.greenbuildinglawupdate.com
19. [TITLE as Enforcement Mechanism
Bonds OF PRESENTATION]
• Green building regulations require
enforcement mechanisms
• Entities using bonds as enforcement
mechanisms:
• Washington, D.C.
• Arlington County
Chris Cheatham - www.greenbuildinglawupdate.com
20. [TITLE as Enforcement Mechanism
Bonds OF PRESENTATION]
Washington, D.C. -
Green Building Act of 2006
Section 4 - starting January 1, 2012, private projects
•
greater than 50,000 square feet must be LEED certified
“(b) On or before January 1, 2012, all applicants for
•
construction governed by section 4 shall provide a
performance bond”
“(g) All or part of the performance bond shall be
•
forfeited to the District and deposited in the Green
Building Fund if the building fails to meet the
verification requirements described in sections 3 and 4.”
Chris Cheatham - www.greenbuildinglawupdate.com
21. [TITLE as Enforcement Mechanism
Bonds OF PRESENTATION]
Surety and Fidelity Association of
America and Surety Bond Producers:
Letter to Government of D.C., August 13, 2007
•
“The new law incorrectly uses the term ‘performance bond.’ In
•
short, the performance bond assures that the construction
contract, and therefore, the project will be completed.”
The bond in the Green Building Act “seems to function more in
•
the manner of a license or compliance bond, which typically
guarantees compliance with a law or code.”
Chris Cheatham - www.greenbuildinglawupdate.com
22. [TITLE as Enforcement Mechanism
Bonds OF PRESENTATION]
“Surety groups fear risks in D.C.
green building act”
Washington Business Journal, December 12, 2008
•
“Alan Heymannn, a spokesman for the D.C. Department of the
•
Environment, said his agency has formed a working group
with the Department of Consumer and Regulatory Affairs to
address the surety industry’s concerns.”
Surety Guy is Happy!
Chris Cheatham - www.greenbuildinglawupdate.com
23. [TITLE as Enforcement Mechanism
Bonds OF PRESENTATION]
Arlington County -
Bonus Density Program
• Developer declares intent to
achieve LEED certification
• Developer applies for FAR variance
• .15 - certified
• .25 - silver
• .35 - gold/platinum
Chris Cheatham - www.greenbuildinglawupdate.com
24. [TITLE as Enforcement Mechanism
Bonds OF PRESENTATION]
Arlington County -
Bonus Density Program
• Enforcement Mechanism: Bond
• Bond = Bonus Space * Rental Rate
• Developer posts when
75% complete
• Bond released upon certification
Chris Cheatham - www.greenbuildinglawupdate.com
25. [TITLE OF PRESENTATION]
Suretyship and Green Building
Arlington County has successfully
required and released two bonds.
Developer Guy and Surety Guy Happy!
26. Suretyship and Green Building
What did you learn?
1. Surety enters into three-party
contract with owner, contractor
2. Performance bond guarantees
contractor will build to plans
3. Bonds can be used to enforce
green building requirements
Chris Cheatham - www.greenbuildinglawupdate.com
27. Suretyship and Green Building
Want to learn more?
www.greenbuildinglawupdate.com
chris@greenbuildinglawupdate.com
Chris Cheatham - www.greenbuildinglawupdate.com