WHO WILL GIVE THANKS FOR WATER?

On the last day of November, Americans celebrate Thanksgiving Day. By tradition, the first Thanksgiving is said to have occurred in November, 1621 when Pilgrim colonists at Plymouth, Massachusetts held a harvest feast, a festival lasting three days. It is said that the meal included lobster, seals and swans. Governor Bradford invited friendly Wampanoag Indians, including Chief Massasoit who added five deer to the menu. Pumpkin pie was not baked, as there were no ovens.

The Pilgrims certainly had much to be thankful for--not the least of which was survival. Only about one-half of those arriving on the Mayflower in 1620 had survived the winter. In addition, they were thankful for the Indians who had taught them how to grow corn, harvest maple sap, catch fish and avoid poisonous plants.

In 1863, President Lincoln proclaimed an annual Thanksgiving Day as a national holiday in November. More recently, the U.S. Supreme Court acknowledged that Thanksgiving Day is constitutional. It said: "Our history is replete with official references to the value and invocation of Devine guidance in deliberations and pronouncements of the Founding Fathers and contemporary leaders. Beginning in the early colonial period long before Independence, a day of Thanksgiving was celebrated as a religious holiday to give thanks for the bounties of Nature as gifts from God. President Washington and his successors proclaimed Thanksgiving, with all its religious overtones, as day of national celebration and Congress made it a National Holiday more than a century ago. Ch.167, 16 STAT. 168 (1870). That holiday has not lost its theme of expressing thanks for Devine aid any more than has Christmas lost its religious significance."*

Now, in 2013, almost 300 years after the Pilgrims launched their first Thanksgiving feast, the Day means sacrificial turkey, potatoes of some sort, squash, cranberries, pumpkin pie and other treats. It also means falling asleep before a television set blaring boring football games as an escape from listening to boring relatives. It also means running to all the stores that open even before all the football games are over to buy things on sale that no one needs or wants. In effect, the so-called Black Friday becomes a Black Thursday all-nighter.

But,there's more! Even though thanks may be uttered for the turkey, the trimmings, the football, the sleep, the open stores and their sales--oh yes, even the boring relatives--it is likely that no one will give thanks for the most important thing that day. Who will give thanks for water?

Without water, there would be no turkey, no trimmings, no football, no television, no stores, and no boring relatives. Indeed, for example, it has been reported that, according to a U.S. Geological Survey, it takes an average of 39,000 gallons of water to make a car to get to stores, and it takes 1,440 gallons of water to produce a dozen of eggs that might be used for the meal. And, of course, without water, there would be no one to give thanks for anything.

So, this Thanksgiving Day, maybe we should start giving thanks for water and acknowledging our responsibility to conserve and protect it.

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* Lynch v. Donnelly, 465 U.S. 668 (1984), p. 675

UTILITY CONSTRUCTION SURETY BONDS, PART 2--PAYMENT BONDS

A performance bond is intended to assure a utility that a contractor will complete a contract according to its terms. A payment bond is intended to assure a utility that the contractor's labor subcontractors, and material and equipment suppliers, will be paid what is owed them by the contractor.

A payment bond can offer subcontractors an alternative to enforcement of mechanics liens. In some jurisdictions, a subcontractor on a public works project for a municipal-owned utility can assert a mechanics lien only against unspent funds held by the owner for that project. Thus, under some circumstances, subcontractor claims may exceed available funds held by a utility for the project.

Things may not be that much better in the case of an investor-owned utility. Several years ago, a contractor unpaid for work done on a component of a wastewater treatment plant foreclosed on a mechanics lien on the plant and acquired a partial ownership interest in the plant. The state utilities commission then cited the contractor for alleged violation of utility law requiring a certificate of public convenience and necessity as a regulated public utility.

When a contractor fails to pay subcontractors, claims for payment can be made against the surety on a payment bond. However, there are notice requirements in such a bond that must be followed. If a surety does not pay subcontractor claims, generally both the utility owner and affected subcontractors may sue the surety. However, a surety, as in the case of performance bonds, may assert defenses to liability. Thus, again, the bond can simply become a ticket to admission to a courthouse trial. The amount of a bond, of course, is the limit of a surety's financial obligation in any case.

A recent court decision addressed a situation where a contract between a municipality and a contractor for a public works project required the contractor to produce both a performance bond and a payment bond. However, the contractor failed to provide the required payment bond. The court held that an unpaid subcontractor was a third party beneficiary of the municipality's agreement with the contractor requiring the contractor to supply a payment bond. Accordingly, the court held that the subcontractor could sue the municipality for breach of contract and recover from the municipality payment for its work. (Lake County Grading Company, LLC v. Village of Antioch, 2013 IL.App.(2d)120474 (2nd Dist.)).

In short, it would seem prudent, and in some cases a legal requirement, for a utility to require its contractors to produce both performance and payment bonds, in adequate dollar amounts and issued by approved sureties.

UTILITY CONSTRUCTION SURETY BONDS, PART 1--PERFORMANCE BONDS

It is common for water and wastewater utilities to require contractors engaged in construction of infrastructure projects to provide performance and payment surety bonds. Indeed, some states mandate that municipal-owned utilities obtain such bonds from their contractors. One example of such a mandate is the Illinois Public Construction Bond Act (30 ILCS 550/1, et seq). That statute states that performance and payment bonds must be obtained for all "public works" projects costing more than $5,000.

This posting will focus on performance bonds. The following post will discuss payment bonds.

Performance bonds involve a three party arrangement. In the utility situation, the contractor is the "principal"; the utility is the "beneficiary"; and the third party, of course, is the surety.

The purpose of a performance bond is to assure the completion of the project in accordance with the contract terms. Typically, in the event that a utility declares a contractor default, the surety becomes obligated to cause the contract to be performed and completed. If the surety fails to undertake its obligations with reasonable promptness, the utility is free to enforce available legal remedies. If the surety does comply with its obligations, it becomes subrogated to the utility's claims against the contractor.

So, what does a performance bond really do? In reality, for the utility as beneficiary the bond is not a guarantee that the contract will be completed. It often becomes simply a ticket of admission to the court house for the principal. That is, the beneficiary winds up suing the surety. A surety may decline to perform by raising defenses to its obligations such as a failure by the beneficiary to give proper notice or a breach of the construction contract by the beneficiary itself.

In accepting a performance bond provided by a contractor, a utility should be satisfied as to the financial standing of the surety and as to the various terms and conditions of the bond. A bond may be well written but of no value if the surety is insolvent.

Completion of a construction contract does not necessarily end the matter, although it may end the bond. The problem is that after completion defects in construction may develop or are discovered necessitating repairs and correction by the contractor. In turn, such repairs can be expected to cause extensions of the applicable warranty period. A utility should be aware of the need to extend bond protection either by terms set forth in the original performance bond or by a requirement for a new maintenance or performance bond covering such repair obligations and warranty extensions.