In his recent weekly memo Bellaire City Manager Paul Hofmann explained that last Fall it was discovered that the surety bonds provided by A Status Construction, LLC for three (3) City bond projects, totaling over $6.5 million dollars, were fraudulent.
Mr. Hofmann emphasized that this revelation was the result of a breach of the attorney-client privilege through an update from the City Attorney to the City Council on December 27, 2019. Which begs the question, would Bellaire residents have been apprised of this occurrence otherwise?
Basically, a surety bond requires the surety company to pay a set amount of money to the obligee, in this case the City of Bellaire, if the principal (A Status Construction) fails to perform a contractual obligation. It also helps principals, typically small contractors, compete for contracts by reassuring customers that they will receive the product or service promised.
Without those bonds, Bellaire would be liable for payment to any unpaid subcontractors, vendors, or any other costs resulting from from A Status Construction’s failure to meet their obligation to any of the City contracts. The bonds are required by law under Texas Government Code 2253, Subchapter B.
Apparently the contractor purchased the surety bonds through a local agent, though the name of the agent was not revealed. No explanation was provided on how this discovery occurred. A copy of some of the fraudulent bonds, obtained from the City via a Request for Public Information, can be reviewed here. The Texas Department of Insurance is investigating the reports.
The company listed as issuing the bonds, Merchants National Bonding, Inc., has never existed as a Houston or Texas company. The various names shown on the Power of Attorney are actually employees of another surety company, SureTec, and have nothing to do with these bonds. A representative of SureTec advised that the forms were an amateurish cut and paste of an old SureTec Insurance Company power of attorney.
To quote from Mr. Hofmann’s memo from the City: “We are treating this matter confidentially to protect the interests of the City’s contractor, AStatus Construction. The contractor is apparently the victim of fraud. Further details on that should be provided by the City Attorney, not by myself as it’s a continuing legal matter and subject to the attorney-client privilege.
Our understanding is that the contractor is pursuing legal action for having not been provided valid bonds, and will press charges in the likely prosecution of the bonding agent.” He said once the problem came to light AStatus worked diligently to secure
replacement bonds, which are now in place and have been validated. The entire weekly memo for January 10, 2020, can be found here.
Updates on this situation will be posted if or when new information is revealed.