1. #1
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    Default Performance Bonds

    Can anyone fill me in on what happens when a fire department has to use a performance bond when a truck builder defaults on a contract. I was always led to believe that if there were others bidders, the next lowest compliant bidder would assume and complete the contract, with the Bonding Company paying the difference. However, I've been told that the Bonding Company assumes the contract and can negotiate with any builder to complete the contract regardless of whether that company bid on the truck originally.

    What's the true story as I'm sure there are folks out there wondering the same thing. Does the fire department get any say in who will build their truck?

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    The bonding company can and will negotiate in their best intrest. The department should have a fair amount of input in the process.

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    There is no way they could possibly force the second highest bidder to honor a price that is over the 30 or 60 days that the average quotation or bid price is good for. Usually when a bond gets called it is a year or more after the original bid and nobody is going to hold their price that long. Additionally, by now, there is work that is already completed and the job is not the same.

    The bonding company can negotiate with a vendor of its choice, often with fire department input. Or, it can let bids on completion of the project.

    When a builder of any size goes down the crapper, an individual dealer may have several apparatus in the works. It is not unusual for the dealer to get the bonding company to talk to the new apparatus builder he is in negotiations with.

    For example, Builder A goes belly-up because their 25 million dollar MRP software system just can't handle their 24 truck per year volume and produce enough profit to cover their 16 acre spread at the FDIC and the salaries of all 11 vice presidents. Dealer has six units in various stages of completion at the time. Dealer decides he would love to represent Builder B and visits the factory. While there he presents the specs for the six units and explains the stage the each one is at and asks them if they would be willing to complete them. If Builder B says yes, Dealer calls bonding company who calls Builder B and starts negotiations. If Dealer is worth a darn, he has already talked to the departments about Builder B and the customers are warm to the idea.

    I have always thought this to be the most sensible way of handling the units. This way the finish work is being done by a builder that is good enough to attract reputable dealers. This builder will know that the customer might soon be a repeat customer if they do good work since they already like their dealer enough to trust his judgment. The dealer gets treated well by the builder since he has a proven backlog of units and came on board with orders.

    Most bonding companies don't really have a clue about fire apparatus so they are willing to listen to those that do. The customer has a lot of input but, the bonding company will only spend the least amount of money that it takes to accomplish their mission.

    Sorry this post is so long and disjointed.

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    I agree with everything so far. Of course its commonly an insurance company that underwrites the bond. And if they have to honor the bond, they want to get out as cheap as they can.

    firepundit, I liked your "hypothetical" situation with Builder A. I thought most folks had forgotten the elaborate display at FDIC.

    Anything come close to the extravagance this year? Kind of reminds you of the orchestra playing while the Titanic was sinking.

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    Quote Originally Posted by Command6 View Post
    I agree with everything so far. Of course its commonly an insurance company that underwrites the bond. And if they have to honor the bond, they want to get out as cheap as they can.

    firepundit, I liked your "hypothetical" situation with Builder A. I thought most folks had forgotten the elaborate display at FDIC.

    Anything come close to the extravagance this year? Kind of reminds you of the orchestra playing while the Titanic was sinking.
    No rock bands this year if that's what you're asking...
    "Share your knowledge - it's a way to achieve immortality." - Stolen from Chase Sargent's Buddy to Boss program

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    We have just build a new fire station. All I will say is thank god we had a performance bond.
    This space for rent

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    Default Performance Bond info

    http://firefinanceexpert.blogspot.com/

    I have some articles on my blog about prepayments. I have gone through 2 bankrupt manufacturers over the past 15 years and have negotiated with the bonding companies.

    Trust me, they are professionals at trying to wear you down and pay you the least amount of money possible.

    My contact information is on the site above. Call if I can help. It's a freebie help.

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