Seems like every few weeks a story comes up about surety fraud in some form or another. From crooked agents issuing bonds that were not approved, to contractors forging signatures and issuing bogus bonds, to individual surety companies collected huge premiums on bonds worth nothing, these can all largely be avoided by some key steps by contracting officers, purchasing and procurement officials, general contractors, and any other entity that is the beneficiary of performance and payment bonds. Here are 5 steps to take to greatly reduce the chance of receiving a fraudulent bond:
- Read the Bond Form. The bond’s surety company should match the surety on the attached Power of Attorney. The agent who signed should be listed on the power of attorney. The dates should match. Make sure the bonds are properly sealed with the surety company’ impressed seal.
- Confirm the Surety Company is Treasury Listed. Click here. If the surety company not listed on this site, you should not accept the bond. It could be a bond issued by an individual surety, which have largely shown to not been worth the paper the bond is written on.
- Check the Insurance Agent’s License who signed for the bond. Make sure it’s a licensed agent that wrote the bond.
- Verify the Bond is Valid. Call the agent who issued the bond to verify it’s valid. If still not confident, call the surety company. *This is made much easier when the obligee requires this information is typed on the bond itself. By requiring a surety and agent contact person and telephone number, it saves a lot of time when verifying the validity of the bond.
- Develop and Implement a Bond Verification System. Having all procurement officials following the same protocol will prevent any ‘holes’ in verifying the validity of the bond.
Performance and payment bonds are required under federal law to ensure that public projects are completed and all 1st and 2nd tier subcontractors and suppliers are paid what they are owed. As the obligee (beneficiary) of the bond, you are paying for this protection. Do yourself a favor and take these steps to prevent fraudulent bonds to protect your interests; and from littering our industry.