What’s in a Name?

Changes to Terminology Reduce Construction Bond Mystery

Preparing for an Insurance Journal Academy of Insurance bonding seminar, I studied the American Institute of Architect’s bond forms again. The first one I eyed was the A310, the bid bond form, which was revised in 2010. It was the first revision denominated as such in 40 years.

The basic structure hasn’t changed, though there are some significant revisions, such as acknowledging the prospect of an agreed extension of time to award the contract — up to 60 days — without invalidating the bond.

One change might seem to be cosmetic, which is that of renaming the parties. Now, rather than using the name of “Principal,” we’ll refer to the “Contractor.” The surety’s name remains unchanged — still called “Surety.” But the biggest, and the best, of the nomenclature alterations is that of “Obligee” now becoming the “Owner.”

Why such a big deal? Well, is it a hard “g” or a soft “g”? Is it pronounced “obli-GEE,” with “gee” rhyming with “key,” or is it “oblizhee,” with a muted “g” sound? Which way can I say it and not sound foolish? Whoops … too late.

Mostly, though, what these changes do is reduce the mystery of what a bond is and how bonds function. We’re giving everyday parties their respective everyday names. We’re more accurately describing them in relation to one another, by referring to their role in the construction project, and not their role with respect to the suretyship arrangement.

That’s a really good result — because of what it suggests for our future. Perhaps this is an opportunity for the construction industry and the insurance industry to communicate very, very well with one another.

Sure, the major construction and insurance players on the national and international stage talk to each other at great length when major construction industry forms are revised. That happened with the bond form revisions, as the AIA (American Institute of Architects), SFAA (Surety & Fidelity Association of America), and the NASBP (National Association of Surety Bond Producers) all collaborated.

However, the communication that is interesting to me is on a much smaller level: individual, non-standard construction contract forms, far afield from the usual AIA or AGC (Associated General Contractors of America) documents.

These are the forms that “request,” for instance, the exceptionally broad ISO additional insured form (20 10) from the mid-1980s. As a former member of a construction law firm, and as counsel to a large Midwest general agent and the Independent Insurance Agents of Indiana, I’ve seen many of these. And I get to use a favorite line: “The bad news is that the contract drafter may not know what it is that is being demanded. The worse news is that the contract drafter may know exactly what is being demanded.”

Often, I just cross my fingers and hope, if my client or agent is on the receiving end of the request, that someone simply hasn’t updated their agreement form since, say, before the Berlin Wall fell.

The scrimmage moves from place to place. It starts with the requests to modify the ACORD form Certificate of Insurance to extend rights to cancellation notice. It moves to arguments over “primary and non-contributory.” It flirts with a requirement for XCU (explosion, collapse and underground) coverage. It shifts to back to the broadest possible additional insured status.

The subjects are disparate, really. The common thread is the request in the form of the non-standard, but purportedly unchangeable, construction contract and the insurance industry’s general inability or unwillingness to provide what’s being requested.

For those of us on the insurance side, we represent collateral damage. It’s not our construction agreement because we’re not parties to it. Yet we are diminished in our client’s or insured’s eyes when we get ensnared and don’t have a cogent, precise solution.

So, I suppose that’s why I’m happy with the name changes in the A310. Sure, it’s modest, but plain language, and especially clear terminology, should always be cheered. What should really be good news is when we get leading construction industry forms and insurance industry forms saying exactly the same thing. The example of the A310’s terminology change is reflective of an approach that I hope influences both industries as a whole, and does so on an everyday, normal basis.

Topics Market Construction