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How to Avoid Fraudulent Performance Bonds

According to the Memphis Daily News, a rash of bad construction project surety bonds in three states and American Samoa landed at Memphis International Airport this summer with plans to demolish the Regency Hotel on the grounds of the airport.

Link to article

Bad surety bonds have been a problem, sporadically for years.  A surety bond is nothing more than a piece of paper and this simplicity makes it rather easy to provide a fraudulent document.  The good news is it is also very easy to verify if a surety bod is fraudulent or not.   A phone call to the surety with the bond number is really all one needs to to make sure a surety bond is valid.  The US Treasury list can tell you if the Federal Government would accept a bond from the company and phone call to the company to verify it was actually written by them covers both bases.
The problem is two fold, first,  suppose you accept a performance bond on a project from Acme Insurance Company.  The bond looks real enough, has a raised seal and an attached attorney in fact.  Before accepting this bond, check to see if the Acme Insurance Company is on The Listing of Certified Companies  published by the U.S. Treasury Department. (Link click here for a link to the listing)  If you checked, you would see that it is not.  This means that there is an overwhelming chance that there is nothing backing up the bond, it is, most likely a worthless piece of paper. There are also rating agencies (AM BEST, S&P etc.) that also rate insurance companies
The second half of the problem of bad bonds is if you got a bond from a company that is on the Listing of Certified Companies however, it was not approved or actually executed by that company.  First line of defense in this instance, is to make sure the bond was signed by a licensed agent in the State in which the bond was issued.  As a result of Sacramento County accepting fraudulent bonds, it now requires the attorney in fact on a bond to be a licensed agent and provide their license number as provided by the CA Department of Insurance, and provide a phone number.  
A  licensed agent can provide a great deal of assistance in verifying the  authenticity of a surety bond.  First of all, the licensed agent would lose their license, and ability to make a living, if it they issued fraudulent surety bonds.  A good professional surety bond agent can also provide information such as a phone number of the insurance company itself to verify a bond or bonds.  Any professional surety bond agent would be happy to assist in the verification of a surety bond they provided.  
A little diligence can go a long way in making sure a surety bond is worth a lot more than the paper it is printed on.   
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