BOND LINE                                     Most recent update September 21, 2009

TO OUR CLIENTS:

As surety specialists, we have found it advantageous to update our clients periodically concerning the state of the industry.  This update information makes our clients better able to make the decisions required on the other financial disciplines (accounting, banking, insurance, real estate, etc.) and how decisions in these areas will affect their surety bond credit. 

Please note that this newsletter will be on our website and updated periodically to add new information as provided by both our markets and our clients. 

• “In 2009 the value of construction starts for both private and public non-residential building markets, public works and electric utilities will all be in decline” – ENR.com.  McGraw-Hill Construction has a released the following “pattern of U.S. Construction Starts ($ billion)” as follows:

Source: ENR.com – McGraw-Hill Construction, “This Year’s Bad News Gets Worse in 2009.”By Bruce Buckley 10/29/08. (To subscribe, call 212-512-2000 or visit their website at http://enr.construction.com/subscribe.asp

• Bidders Beware:  Government Mistakes Won’t Rescue Tardy Bid If You Share Blame

In a recent case, Aquaterra Contracting, Inc.’s bid arrived in the Department of the Army, Corps of Engineers’ mailroom four hours before the 2pm deadline.  However, even though the bid left the mailroom at 1:45pm, it didn’t make it to the contracting officer before she left her office to open the bids in a nearby room.  She discovered the bid two hours later.  The government rejected the bid as late and the Comptroller General upheld that decision on several grounds.  Learn from these mistakes:

1.      Bidders are responsible for delivering their bids on time – and to the designated office.  In practice, delivery to other locations, such as the mailroom, is insufficient.

2.        Don’t leave proper delivery to chance, check the labeling.  Aquaterra hadn’t followed solicitation instructions for labeling and addressing the package, therefore the Comptroller General found that they had failed to do what they reasonably could and should have done to ensure proper delivery

3.      It matters whose fault is “paramount” – it’s likely yours.  Aquaterra lost its award because it hadn’t labeled its submission with the appropriate contact person, post office box or solicitation number (nor had it included any other indication that the package was time-sensitive or contained a bid).      Lesson:  Type the information necessary for the owner to assure timely delivery.

Source: Construction Claims Monthly. Vol 30. No. 10, October 2008, Business Publishers, Inc. P.O. Box 17592 Baltimore, MD 21297 (To subscribe, call 800-274-6737 or visit their website at http://www.bpinews.com)

·         HEALTH CONTRACTOR BENCHMARKS

Ø      Minimal underbillings

Ø      Equity greater than 10% of annual revenues

Ø      Low history of contract fade

Ø      No significant bid spreads

Ø      Positive cash flow on contracts

Ø      Conservative equipment costing methods

Ø      Low employee turnover

Ø      Low insurance claims ratios

Source: Ed Brager, Ellin & Tucker, Chartered – www.etnet.com (410) 727-5735

·        DON’T GET COMPLACENT ABOUT LOWER OIL PRICES

The Kiplinger Letter predicts that prices will start to head up in the spring of 2009, as signs of economical recovery emerge.  By December 2009, they’re predicting prices of $75-80 a barrel.  Gasoline should be about $2 a gallon, diesel $2.90 a gallon, and heating oil $2.60 a gallon.

Additionally, and interestingly, come 2010 growing oil consumption will again push prices to a $100/barrel.  Global demand will climb to 88 million barrels a day.  In contrast, demand today is about 84.5 million barrels per day.  Shortages of diesel fuel refining capacity will re-appear, because planned new refineries fell victim to the recession.  That will push diesel prices towards the $4.00 mark and gasoline prices will climb another $1.00 from 2009.

Source: The Kiplinger Letter.Vol.85, No.51. www.kiplingerbiz.com Subscription inquires: 800-544-0155 

·        AMERICA’S PLACE IN THE WORLD

Source: The Kiplinger Letter.Vol.85, No.51. www.kiplingerbiz.com Subscription inquires: 800-544-0155 

·        METAL PRICES

Metal prices will fall further before stabilizing and gaining slightly in 2010.  Meager demand by manufacturers and builders will prevent any significant recovery from November’s losses of 50% or more when economic unease spread worldwide.

Look for aluminum to decline by more than 10%, from 90 cents to 80 cents a pound, by the end of 2009.  Copper will shed over 15%, slumping from $2.10 to $1.75.  Tin will fall about 5%, to $5.50 from $5.85.  No improvement, either, for nickel, which will drop about 15% in 2009, going from $5.05 to $4.30.  It fell 60% in the fall.

Source: The Kiplinger Letter.Vol.86, No.1. www.kiplingerbiz.com Subscription inquires: 800-544-0155 

·        THE SBA

The SBA will get a “beefier” role under new regime.  Under Bush, the agency saw its funding fall, was plagued by a host of controversies and lost the prestigious Cabinet level status conferred on it by President Clinton.

Obama is signaling greater respect for the SBA.  His pick to head SBA, Karen Gordon Mills, comes with a wealth of experience investing in small businesses, academic credentials, and a track record of working with government to foster entrepreneurship.  Mills is the first SBA chief-in-waiting in decades to be named before inauguration.

Key lawmakers want SBA back in the Cabinet and more funds.  The heads of the House and Senate small business committees plus the top GOPer on the Senate committee are urging Obama to elevate the agency’s status once again.

Given the precarious state of the economy, increased interest isn’t a surprise.  Over half of GDP comes from businesses with fewer than 500 employees.

Source: The Kiplinger Letter.Vol.86, No.2. www.kiplingerbiz.com Subscription inquires: 800-544-0155 

ABC 'WOMAN OF THE YEAR' AWARD
Donella Johnson will be honoree at Winter Gala

        A truly deserving recipient of this year's Woman of the Year award is the Corporate Relations Manager of Commercial Interiors, Donella Johnson.  Donella has been an integral part of community activities representing both ABC and her firm.  She is an active member of both Women of ABC and Events Committee.  Commercial Interiors hosts several events annually which benefit the underprivileged; events which are arranged by her with the permission and gratitude of her firm.  Further, it was under her personal guidance that WABC participated in two Heart and Sole Strolls for the Red Devils, an organization which provides support -- both physical and emotional -- to the women undergoing treatment or are recovering from cancer. Donella demonstrates all that is to be admired in our industry.  She is a dynamic, enthusiastic young woman whose vision sees well beyond boundaries of gender, age, and race.  Congratulations to our 2008 Woman of the Year!

PERRY’S CONTRACTOR WOES

Six construction companies have filed liens against actor-screenwriter Tyler Perry’s home and movie studio, claiming they are owed thousands of dollars in unpaid bills.  The companies claim they are owed nearly $200,000 for work on his home and production studio in Atlanta.  Perry told the Atlanta Journal-Constitution that he withheld payment from the companies for undocumented or sloppy work, adding that he is being treated unfairly because he’s a celebrity.

Source: The Washington Times, January 27, 2009

SURVEYS SEE SOFT MARKET BOTTOMING OUT

“Although commercial insurers continued their six year trend by cutting rates during the 4^th quarter of 2008, recent data suggests a reversal may soon be underway as the global economic crisis increases pressure on carriers to raise premiums, according to a survey by the Risk and Insurance Management Society.  The survey’s findings and conclusions were echoed in a second study by the Council of Insurance Agents & Brokers…” Dave Bradford, chief knowledge officer at Advisen Ltd., told National Underwriter, “It does appear that the numbers are starting to show a slowing down of the soft market…”

Source:  National Underwriter Property & Casualty, February 2, 2009, www.propertyandcasualtyinsurancenews.com

DUTY TO DEFEND GREATER THAN DUTY TO INDEMNIFY

A July 2008 decision on a piece of litigation in the California Supreme Court affirmed the duty to defend concept as being greater than the duty to indemnify.  The case, Crawford v. Weather Shield Manufacturing, stated that a subcontractor’s contractual obligation to defend a builder exists regardless of the subcontractor’s actual negligence.  The decision rendered will have a significant impact on the way cases with similar issues are decided in the future.  The question before the court was “did a contract under which a subcontractor agreed ‘to defend any suit or action’ against a developer ‘founded upon’ any claim ‘growing out of the execution of the work’ require the subcontractor to provide a defense to a suit against the developer even if the subcontractor was not negligent?”  The answer from the California Supreme Court on 7/21/08 was an emphatic “yes.”

Source:  Insurance Journal-National Region, January 26, 2009, www.insurancejournal.com   

Source: ENR.com – McGraw-Hill Construction, “Construction Economics.” February 23, 2009 issue. (To subscribe, call 212-512-2000 or visit their website at http://enr.construction.com/subscribe.asp

Slicing up the Pie
Here's a breakdown of federal contract awards to small businesses.
Business Type	Amount	Shares of total contracts	Goal
Small Businesses	$93.2 billion	21.5 percent	23 percent
Minority-Owned businesses	$29.3 billion	6.8 percent	5 percent
Women-owned businesses	$14.7 billion	3.4 percent	5 percent
Hubzone businesses	$10.1 billion	2.3 percent	3 percent
Service-disabled veterans	$6.4 billion	1.5 percent	3 percent
Source: SBA - Baltimore Business Journal - baltimorebusinessjournal.com August 28 issue