Surety Bonds in the 21st Century: A Guide to the Electronic Filing of Surety Bonds
The Surety Industry Supports the Electronic Filing of Surety Bonds
The Surety & Fidelity Association of America (SFAA) and the National Association of Surety Bond Producers (NASBP) strongly support the electronic execution and filing of surety bonds. Electronic bonding replicates the bond execution process that exists today – the signing of the bond form by the principal and surety and physically delivering the form to the obligee electronically through the Internet or other electronic medium, or within a Web-based environment without paper or delay. The electronic filing of surety bonds reduces processing costs and increases efficiency for all parties involved in the bonding process: government agencies and other obligees, contractors and other bond principals, surety bond producers, and surety companies.
The practice of transmitting and receiving bonds electronically is a new development. This brochure provides some guidance regarding the process from the perspective of surety bond producer and surety company.
Legally, Is An Electronic Bond Possible?
Yes. The Uniform Electronic Transactions Act (UETA), which is model state legislation developed by the National Conference of Commissioners and Uniform State Laws, gives legal standing to electronic documents and electronic signatures. At the federal level, the Electronic Signatures in Global and National Commercial Act (E-Sign) states that electronic documents and signatures are legally enforceable if the contracting parties consent to the electronic process. UETA and E-Sign clear the way for executing electronic contracts, including surety bonds.
With the legal foundation in place, public agencies and private owners must establish bond filing methodologies in order to make electronic commerce a reality. Such methodologies should address issues such as transmission methods, security procedures, verification techniques, and data integration. In order to achieve optimum efficiency offered by automation, SFAA and NASBP encourage public agencies and private owners to develop methodologies that encourage the broadest participation by surety companies, surety bond producers, contractors, and risk managers.
What Is An Ideal Methodology?
The benefits of automation are achieved when a majority of surety companies, surety bond producers, contractors, and other bond principals utilize a particular methodology. An environment in which only a few bonds are submitted in electronic form severely mitigates the cost savings and efficiencies contributed by automation. In order to develop broad participation in electronic filing, SFAA and NASBP offer the following guidance regarding these basic requirements of a filing process:
- The filing process and methodology should ensure the bond is enforceable and all aspects of the bond transaction are valid, including the identity and authority of the surety’s attorney-in-fact.
- The process should incorporate an open public/private key encryption standard that can be implemented cost-effectively by all parties involved in the procurement process working with any number of authentication providers. The process should not require the exclusive use of a specific technology or require access to a single private authentication provider.
How Do I File A Bond Electronically?
A wide array of technologies and processes could be used to file bonds electronically. One method, which would permit surety companies, surety bond producers, and contractors to use existing “off the shelf” technology, would involve the use of encrypted e-mail or other delivery technology. A sample process would be:
- Producer completes electronic bond form, and power of attorney if necessary, and affixes digital signature.
- Producer transmits bond and electronic power of attorney to principal/contractor via e-mail or other electronic means. (The power of attorney could be sent to the producer by the surety company upon authorization of the bond.)
- Principal/Contractor affixes its digital signature.
- Principal/Contractor sends bond and power of attorney to obligee at the designated electronic address.