This is a real case that was handled by our bail bond experts… great! See what you can do with it.
The facts:
- This is a Performance Security request for a multi-million dollar subcontract
- The applicant/principal is a long-established company
- They have successfully completed projects of a similar size.
- The company has a modest net worth, but is on a profitable trend. The proportions are fine.
- Shareholders’ personal financial statements add more net worth to the picture.
- The company is owned by a father and son. The son is the main shareholder.
- We notice that their SS numbers are only a few digits apart
- The father has a substantial net worth. He has a small net worth as stated in his personal statement.
- The applicant has started the subcontract.
- The GC/obligee has a very harsh mandatory bond form. It effectively makes it a forfeiture bond (the force completes the job and sends you the bill).
- The father has a living trust
- Your also indicated that you have a trust
Lots of moving parts. What are the problems?
- Low company net worth. Too low for the requested size bonus.
- “Closed” SS numbers imply that these people are immigrants (they received SS numbers around the same time). Are they US citizens?
- Subcontract started. Why were they allowed to start without a bonus? Degree of completion? acceptable job? Bills paid? Shall we program?
- Do we want to write a forfeiture bond form (financial surety?)
- What assets are in trusts? Can you give compensation? Will we trust the indemnity of a trust?
– Think of your possible solutions –
This is the approach elaborated by our subscribers:
- Low company net worth. We do not prefer to require guarantees because it can be counterproductive and make it difficult for the client to complete the project. Instead, the client agreed to add capital to the company, an investment in its future. The funds could be a subordinated shareholder loan, or a stronger method: Additional paid-in capital. The latter is more permanent and therefore desirable. The client agreed to permanent capital that would be verified in writing by his CPA and supported by a current interim balance sheet.
- Close the numbers of SS. Why would we ask for anyone who has a social security number? it is because the number itselff does not prove citizenship, nor does filing a US tax return Non-citizens authorized to work in the US may obtain an SS#. “Tax residents” are permanent residents and green card holders who are not citizens required to pay US taxes. All guarantees are cautious when they take personal compensation from a non-citizen. They can easily flee the country to evade their obligations. For this reason, we determined that the father and son were immigrants, as we suspected, and naturalized United States citizens.
- Subcontract started. This would be clarified by obtaining our Letter of All’s Right from the creditor, stating the relevant facts about the project (degree of completion, on time, without problems, etc.)
- Bad form of link. We had previous dealings with this major GC and negotiated a bond amendment that made the bond operate more normally. They agreed to use the bonus mod again.
- Trusts. It turned out that there was only one trust. The son was the beneficiary of the father’s trust, no separate trust of his own. A review of the father’s trust showed that he was not prohibited from signing the severance agreement. However, living trusts are revocable, which means terms can be changed and assets can be moved, making them unreliable indemnities. And it contained the most important asset, the residence of the father. How to overcome this last obstacle? Our solution: We will place a lien on the property that gives us access regardless of changes to the trust.
There you go. Did you find solutions to match ours? It was a difficult/complicated case, but we worked hard to solve it.
We will work hard to resolve his bond cases too. Offer, compliance and payment bonds, and also solar and subdivision!
Include us in your bonus production efforts. We can make it happen.