Payment Bonds Richard Hopp ODonoghue & ODonoghue LLP 4748 - PowerPoint PPT Presentation

Payment Bonds Richard Hopp O’Donoghue & O’Donoghue LLP 4748 Wisconsin Avenue, N.W. Washington, D.C. 20016 (202) 362-0041

Reasons to Require Bonds ∗ Another source of recovery ∗ Threat of bond claim may resolve delinquency ∗ Bonding company may help resolve delinquency ∗ Bankruptcy

Authority to Require Bond ∗ Collective Bargaining Agreement ∗ Benefit Fund Trust Agreement ∗ Settlement Agreement ∗ Court Order

Bond Requirement in CBA The Trustees of any Employee Benefit Fund for which contributions are required hereunder may require for good cause, that any particular Contractor maintain during the term of this Agreement a surety bond in the amount of Fifty Thousand ($50,000.00) Dollars to guarantee the payment of such contributions.

Bond Requirement in CBA Every Employer who employs members of the Union and agrees to be covered by or maintain the provisions of the Agreement will be required by the Union in the circumstances described herein to give security to insure the payment of all wages, fringe benefits and other monetary obligations accruing under this Agreement. The Employer shall furnish security as prescribed below within fourteen (14) days after notice from the Union that such is required. The security may be given either in cash or by bond issued by a reputable bonding company. The amount of the security shall be as follows: 1 through 5 men - $15,000 6 through 10 men - $25,000 11 through 15 men - $50,000 16 through 20 men - $75,000 21 men and over - $125,000

Bond Requirement in CBA The Union may, at its discretion, demand a payment bond of any Employer guaranteeing payment of all earnings, vacation savings, welfare and pension benefit contributions which may become due.

CBA Binds Employer to Terms of Trust Agreement The Employer agrees to be bound by the Agreement and Declaration of Trust entered into as of September 7, 1960, establishing the Central Pension Fund of the International Union of Operating Engineers and participating Employers and by any Amendments to said Trust Agreement.

Bond Requirement in Trust Agreement (CPF Trust) (g) to require such Employer to furnish to the Trustees a bond, with reputable surety thereon, (1) with the Trustees as obligees thereunder; (2) in an amount, determined by the Trustees, consistent with the anticipated future obligations of such Employer; (3) with notice provisions acceptable to the Trustees consistent with purposes of such bond.

Bond Requirement in Settlement Agreement Within sixty days of executing this Settlement and Payment Agreement, the Employer agrees to obtain a payment bond with a penalty amount of no less than $50,000.00 with any additional terms and in a form acceptable to the Benefit Funds. The Employer agrees to maintain the bond for the duration of this Settlement and Payment Agreement.

Court Order – Equitable Relief ERISA 502(g)(2)(E) ∗ Trustees of the Heating, Piping and Refrigeration Pension Fund v. Air Specialties, Inc., 2013 WL 6844275 at *3 (D. Md. Dec. 23, 2013) (granting affirmative injunction requiring employer to obtain bond required by trust agreements) ∗ Plumbers and Gasfitters Local 5 Retirement Savings Fund v. Engineering Contractors, Inc., 2013 WL 153832 at *4 (D. Md. Jan. 14, 2013) (ordering employer to post bond required by trust agreements and CBA) ∗ Mason Tenders Dist. Council v. Envirowaste, 1999 WL 370667 at *3 (S.D.N.Y. June 7, 1999) (ordering employer to post and maintain bond) ∗ Mason Tenders Dist. Council v. Taher Contracting Co., 2005 WL 2654372 (S.D.N.Y. Oct. 13, 2005) at *4 (ordering employer to post and maintain bond).

Bond Brokers ∗ Find a contact for employers ∗ Specialize in payment bonds ∗ Multiple insurers ∗ Help employers collect and present financial information to underwriting ∗ Fund can get reliable information from broker ∗ Can help fund with claims

Payment Bond Terms ∗ Sample bond contract language ∗ Notice to bonding company ∗ Penalty amount ∗ Can include wages, dues, contributions, interest, liquidated damages, audit and legal costs ∗ Attorneys’ fees ∗ Order of payment ∗ Cancellation

Payment Bond Terms- Accept Reports The Surety agrees to accept remittance reports submitted by the Principle, or any other documentation deemed acceptable to the Obligees, showing the amounts due to the Obligees from the Principal as proof of the amounts owed and payable under this bond.

Payment Bond Terms – Other Bonds It is expressly agreed that the Obligees shall not be prevented from enforcing the terms of this bond because of Obligees’ actions or inactions with respect to any other bond which may secure all or a portion of the amounts due and owing to the Obligees by the Principal, notwithstanding the Surety’s right to contribution from any co-surety, sub-surety, or any other source.

Other Options ∗ Payments into escrow account ∗ Irrevocable letter of credit ∗ Personal guarantee

Bond Requirement in Trust Agreement Each Employer shall post a fringe benefits payment bond which guarantees payment of contributions. (a) The required amount of the fringe benefits payment bond is as follows: $10,000 for Employers with five (5) or fewer Employees; $25,000 for Employers with twenty-five (25) or fewer Employees; and $50,000 for Employers with twenty-five (25) or more Employees. (b) If an Employer is unable to furnish a fringe benefits payment bond, the Employer may use one of the following two methods to guarantee payment to the Fund: (1) the Employer may provide an irrevocable letter of credit in the amount required above; or (2) the owners of the Employer (and their spouses) may personally guarantee the amount required above.

Escrow Payment in CBA (NPLA) If in the opinion of the Board of Trustees of a Fund to which Employer is required to contribute, any individual Employer has had a record of delinquent contributions to such an extent that it is necessary for the protection of the beneficiaries of such funds that some security for the contributions be obtained, said Board of Trustees is authorized to require such individual Employer to deposit sums in the amount determined by the Board of Trustees in an escrow account designated by the Administrator of the Funds. Upon completion of the job, any amounts in excess of the contributions due shall be refunded to the individual Employer.

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