The lender that provides the funds to support the Surety Bridge Fund is poised to receive its highest return on the shorted time funds are in place, with a reduced return the longer to matter remains unresolved. The success of the fund in reaching its maximum return will be based on the strength and quality of their neutral assessment of the situation and the production of a non-binding opinion that promotes the early resolution.

Instead of a process that renders the contractor financially weak at the end of the project and turns to a protracted legal system for resolution, the process is modified so that the situation is addressed by construction related participants whose financial reward is in the quick resolution, not the drawn out one.

The financial resources that the Surety Bridge Fund product uses will be a component of the performance and payment bond. It will also provide for funding the project consistent with existing practices and procedures available to a surety in the administration of their obligations under the bonds issued for the project.

By structuring the funds to go through the surety, the actual providers of the funds already have the necessary loan documentation with the contractor as provided by the indemnity agreement between the surety and the contractor. There is also an existing contract with the public entity that may become liable for the repayment by virtue of the underlying contract which is already ratified by the public process that was required for the public entity to enter into the contract.

So without having to secure any new documents to establish legal obligations for repayment of the loan, and with the consent of surety required for the directive itself, coupled with the master agreement between the Surety Bridge Fund and each participating surety, each loan is fully secured.

In the event no resolution can be reached by the Surety Bridge Fund, ultimately the contractor and the owner must come to a resolution. When that happens, and the owner is liable, the Surety Bridge Fund, with the assistance of its public entity group, would be in a position to assist that public entity with generating the funds necessary to meet their obligations.

If the contractor was ultimately responsible for the repayment, and could not meet the obligation, then their surety would make payment within thirty days under the master agreement.

The ideal institutions behind the Surety Bridge Fund would be companies that could assist the public entities and the contractors to find ways to meet their obligations once determined and to trade out the Surety Bridge Fund with other long term financing options.

The long term goal is to establish a fund with as much as $100,000,000 in available resources. The projected activity would probably have 50-60% of the funds traded out in three months or less and approximately ten percent turning into long term loans. Taken as a whole, the fund should produce a collective rate of return that considerably higher than any other secured loan portfolios.

In addition to the income potential to the lender, there are a number of other income opportunities that would be associated with the activity. They are:

• Fees and interest from assisting public entities in securing funds through bond issuance or other public funding vehicles.

• Fees and interest from assisting contractors in securing funds through various funding vehicles, with or without collateral.

• For those matters that enter the legal system, many contractors would like to have an option of financing the cost of pursuing the litigation. The Surety Bridge Fund could consider providing that financing given its existing knowledge of the facts, its possession of the outside expert’s opinion, its unique position within the litigants, and its desire to bring the matter to a close. The financing arrangements are outside of the established premium structure and could include contingency arrangements.

• The ultimate success of the Surety Bridge Fund is the value they bring to the resolution process, which will be directly attributable to the quality of the expert opinion the outside expert generates. The expert opinion could be generated in house if there was justification to support that decision, and provide additional revenue.