Wednesday, October 27, 2010

Court Rules Louisiana May Not Collect on Bid Bond

The Louisiana Court of Appeals, First Circuit, has ruled that the State of Louisiana may not collect on a bid bond provided by a contractor who failed to execute a public works contract with the State.  Click here to read the decision by the court.

The contractor, a joint venture, was unable to obtain the required payment and performance bonds and thus was unable to execute the contract.  The State then attempted to collect on the bid bond that was submitted with the bid on May 29, 2008 by Benetech, LLC and JRDKS Construction LLC, a Joint Venture, for the Bayou Segnette Project.

The Court ruled that the joint venture's bid should have been rejected as non-responsive due to the fact that the bid bond was submitted by an unauthorized surety company.  Louisiana state law requires that surety companies on public works projects meet certain conditions (La. R.S. 38:2219, La. R.S. 38:2218C).  Because the bid bond was not valid to begin with, the Court determine that the State could not collect on it.

Practical Tips:  
  • What Sureties Are Authorized?  Check your state and local laws as well as the provisions of your specifications for requirements that may dictate that the surety must be on the U.S. Department of the Treasury's Financial Management Services list, on a list published by your state insurance department and authorized to do business in your state, and/or have a specific rating in A.M. Best's Key Rating Guide.
  • Review Your Bonds:  Carefully review bid bonds after bid opening to ensure that the bond has been issued by an authorized surety company.  The same type of review should occur for payment and performance bonds.
Thanks to Louisiana and Washington attorney Scott Wolfe, of Wolfe Law Group, for pointing out this court case on his Construction Law Monitor blog.

Mike Purdy's Public Contracting Blog (© 2010 by Michael E. Purdy Associates)

1 comment:

Scott Wolfe Jr said...

Hi Mike - Thanks for picking this up from our blog and referencing our post in yours. Glad to see I could finally give you something to post, as you're constantly giving me great topics :)