AN ALTERNATE TO STANDARD MARKET BONDING
Due to the unfortunate 9-11 Terriorist actions in New Youk City, coupled with Hurricane Katrina the California, wildfires then the california mud slides and numerous other catastrophe incidents that have pleaged the United States in recent years, it has been almost impossible for so many Small, Minority, Veteran, Women Owned and Native American 8(a), HUB ZONE Contractors achieve the level of surety bond support they require in order to sustain a profittable business.
Congress directed federal agencies to develop alternatives to surety bonds for contracts between $25,000 to $100,000. The federal Government authorizes several options in lieu of Payment and Performance Bonds, one of which is the Tripartite agreement. In many cases we have seen Federal Contracting Officers, allow a tripartite agreement in place of a bond in much higher increments. This program can and is used on many Native American Resevations and tribal Construction Projects.
HOW DO YOU SET UP A TRIPARTITE AGREEMENT?
There is a special form that is used for Tripartite Agreements on Federal Projects as well as Tribal Projects and proivate projects. In order to re direct the funds to the third party funds manager a directive or draws if filled out and signed by the three parties of the tripartite agreement which are:
- The Prime Contractor
- The Contracting Officer for the Project
- The Funds Administrator
The lock box system will deposit or wire transfer all deposits into a segerated, non comingled, unencumbered account in a Federally Insured Bank (FDIC).
WHO IS SIGNOR ON THE ACCOUNT?
The funds manager has sole signatory authority on the tripartite account. It is his duty to ensure that all suppliers of labor and/or materials are paid out of each draw payment on a timely and efficent manner and carries out the duties according tho the agreement.
How the Tripartite Agreement works
This is an agreement between three parties, the guarantor, the obligee,(owner) and the principal (contractor).
This is an agreement between the three parties where only one, the principal (contractor) has the possibly of losing money. The guarantor and the obligee are to be made whole.
Tripartite is also call funds management control.
The contractor, by contract, allows the money to be deposited in a locked box or checking account held in a bank that is insured by FDIC. The only person that can draw on the checking account it the guarantor of the account. The guarantor receives a bill and has it approved by the contractor and the comptroller of the job. After approval by the three parties, the guarantor pays the bills within 24 hour from date of approval by all parties. All funds are held in a segregated, non-encumbered account that is federally insured.
The guarantor is responsible to make sure that all the labor costs and material costs have been paid before any money can be given to the contractor.
The Tripartite Agreement is necessary when the principal contractor’s credit rating is less than perfect and has less than a strong review or audit for company financials.
The guarantor usually opens the account and a deposit of $100.00 is required.
The contractor who needs the Tripartite Agreement is usually evaluated on three basic factors known as the three C’s. They are as follows:
1. Character- Does the principal’s record suggests good character; that he or she will be faithful to their obligations?
2. Capacity- Does the principal have the skills, experience and knowledge necessary to perform his or her obligation?
3. Capital- Does the principal have the financial wherewithal to support or finance the completion of the project?
The contractor still must furnish as much financial information that is needed to prove that he meets all the criteria to use the Tripartite Agreement.
An underwriter still must do their due diligence in checking to make sure that all information is correct before they can proceed to a Tripartite Agreement.
Some of the items that they need to get the approval to move forward are as follows:
1. Financial statement- both personal and business.
2. Bank letters of credit.
3. Suppliers letter show that they can have credit for the duration of the job.
5. Resumes of key employees.
Once the surety company has approved the agreement then they must get approval from the owner of the contract to make sure that the funds are deposited into the account that is set up for the job.
The guarantor is then responsible for requesting draws to pay the bills and profits to the contractor. Most draws come on a two week request from the guarantor.
The Tripartite Agreement and fund management controls allow contractors that have never had a bond, or have less than good credit to obtain a bond. It also gives them the ability to make profit and become successful. It also allows all parties to get a good nights sleep knowing that immediate payment is made to all laborers and materials by a third party.
The usual charge for fund management control is normally about 1-1.5%
In summary the surety company must work with the contractor from the time of the application, through change orders, and completion of the contract to make sure that both the owner of the contract is satisfied with the work that has been done and that the contractor has made a profit.
For more information please call 1-888-533-3254
Tri-Partite Agreements service was great!
Thank you so much for helping us with our Tri-Partite Agreements, you have helped our business grow and we could not have done it with our your partnership. Ric feels like part of the family, and we will us you on our other projects. Thanks again!