Monday, October 29, 2012

The Problem of Counterfeit Payment and Performance Bonds

Changes in technology have given rise to a number of cases where contractors have forged Payment and Performance Bonds, leaving the public unprotected.

What do bonds do?  Most public agencies require Payment and Performance Bonds for public works construction projects.  These bonds are important tools to protect the public in the event the contractor either fails to pay subcontractors, suppliers, and workers, or the contractor fails to perform the work.

Check the bonds:  Here's a quick list of things to do to help ensure that the Payment and Performance Bonds you receive from contractors are not counterfeit.
  • Evaluate the contractor's reputation:  Have you done business with the contractor in the past?  What is their reputation?  Are they are new and unknown contractor?   If you aren't familiar with the contractor, you may want to investigate the legitimacy of the bonds
  • Review the bonds:  Are there irregularities or inconsistencies in the bonds?  Is the bond form current?  Are all of the dates, including those on the Power-of-Attorney document current?  The last date on the Power-of-Attorney should be within the last six months to year.
  • Verify the bonds independently:   Contact the actual bonding company backing the bond, not the attorney-in-fact who signed the bond on behalf of the bonding company.  Research the contact information for the bonding company independently and don't rely on a phone number provided on the bond.  One California contractor set up a separate cell phone number they included on a forged bond in the event a public agency called to verify the bond.  Contact the surety to verify that the bond was appropriately issued by the attorney-in-fact.
Examples of bond forgeries:  Here are a couple of stories of forged bonds by contractors:
  • New Jersey contractor jailed for forgery.  Click here to read the entry from my blog on June 12, 2011.  
  • California contractor pleads guilty to forging payment and performance bondsClick here to read the entry from my blog on September 25, 2011.     
  • New York City contractor submits phony bonds to Housing Authority. Click here for details. 
  • Washington state contractor forges bonds. Click here for details. 
Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

1 comment:

Rob Pitkin said...

Mike, thanks for sharing this. There is also a problem with what contractors believe are legitimate bonds, but have "dummy" individual sureties without adequate financial backing.