Performance Bonds Backed By Coal Waste?

Personal surety, an on going thorn in the side of the corporate sureties, are allowed under the 1932 Miller Act, which requires surety bonds on federally funded public works projects.  As many states adopted “baby ” miller act statutes, the allowance for personal sureties has extended to some states.  Corporate sureties are usually large insurance companies with millions  if not billions in surplus backing the surety bonds.  The federal government publishes the Department of the Treasury’s Listing of Certified Companies, which lists all the insurance companies acceptable to provide performance and payment bonds to the Federal Government with specific limits of how large a surety bond the company may provide.

There is no such list for personal sureties and the assets being used to back some of the bonds provided by personal sureties are suspect at best. According to Engineering News Record, (ENR)  one of the most respected construction related periodicals in the industry,  IBCS Fidelity, a personal surety boasts of being capable of providing bonds as high as $50 million.   A concerned tax payer may ask what exactly is the backing for these personal surety bonds?  Edmund C. Scarborough, owner of IBCS Fidelity says “he backs his bonds with about 15 million tons of Kentucky and West Virginia usable coal waste”.

Coal use in the U.S. has been declining precipitously over the last decade.  If the coal really has the value he states, why would he not sell the coal now, while there is at least some market for it and put it into an asset or assets of a more predictable value?

Apparently Rep. Richard Hanna (R-N.Y.) is asking that very same question.  Representative Hannah has proposed a bill in congress that would require any individual surety to pledge very specific assets, such as a Treasury bill or a similar instrument, and place them under the control of a government entity.  If Mr. Scarborough’s coal waste really is worth  the millions he says it is, he will have a chance to liquidate and place the funds in t-bills without any disruption in his business model.  As such, this writer does  not understand why he is opposed to the change in regulation.