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

The Miller Act requires performance and payment bonds on federal construction contracts exceeding $150,000 to protect the government and subcontractors/suppliers.

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

Prequalification is the surety's underwriting process to assess the contractor's three C's — character, capacity, and capital — before agreeing to bond them.

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

Unlike insurance where the insurer absorbs the loss, surety bonds are a credit arrangement where the principal is expected to indemnify the surety for any losses paid on their behalf.

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

The surety's three standard response options are completion by a replacement contractor, financing the defaulted contractor, or paying the penal sum; the surety cannot extinguish the obligee's legal rights.

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

A takeover agreement is executed between the surety and the obligee after contractor default, giving the surety the right and obligation to arrange project completion.

CRIS - Construction Risk and Insurance Specialist Practice Test

CRIS - Construction Risk and Insurance Specialist Practice Test

CRIS Surety Bonds & Construction Guarantees 2