CRIS Surety Bonds & Construction Guarantees 2

Question 1

Under the Miller Act, which federal construction contracts require both performance and payment bonds?

Accepted Answer

Federal contracts over $150,000

Answer

All federal contracts regardless of dollar amount

Answer

Federal contracts over $100,000

Answer

Federal contracts over $500,000

Question 2

What is 'prequalification' in the surety bonding underwriting process?

Accepted Answer

The surety's investigation of the contractor's financial strength, experience, and character before issuing bonds

Answer

The owner's verification of the contractor's license and permits

Answer

The contractor's review of subcontractor qualifications

Answer

The government's approval of a surety company's authority to write bonds

Question 3

What is the key difference between surety bonds and traditional insurance?

Accepted Answer

Insurance transfers risk to the insurer, while surety bonds expect the principal to ultimately reimburse the surety for any losses paid

Answer

Surety bonds are regulated by the government while insurance is not regulated

Answer

Surety bonds only cover property damage while insurance covers all risk categories

Answer

Insurance requires underwriting analysis while surety bonds are issued without underwriting

Question 4

When a contractor defaults on a bonded project, which of the following is NOT a typical option available to the surety?

Accepted Answer

Terminate the obligee's right to make a claim under the bond

Answer

Complete the project using a replacement contractor selected by the surety

Answer

Finance the defaulted contractor to complete the project

Answer

Pay the owner the face amount of the performance bond

Question 5

What is a 'takeover agreement' in surety bond terminology?

Accepted Answer

An agreement between the surety and owner authorizing the surety to complete the project after contractor default

Answer

When the owner takes possession of the contractor's equipment after a default

Answer

When a larger contractor absorbs a smaller contractor's bonded obligations

Answer

An agreement transferring bond obligations to a new project owner

Question 6

What is a 'Little Miller Act'?

Accepted Answer

A state statute modeled after the federal Miller Act that requires bonds on state and local public construction projects

Answer

A federal law that reduces bonding requirements for small construction projects

Answer

A provision allowing reduced bond amounts for minority- or women-owned contractors

Answer

An act that limits the liability exposure of small regional surety companies

Question 7

Which underwriting factors are considered most important in surety bond underwriting, known as the 'three C's'?

Accepted Answer

Character, capacity, and capital

Answer

Cost, compliance, and completion history

Answer

Coverage, claims, and continuity

Answer

Credentials, contracts, and cash flow