Public works contracts may include provisions that require a surety to complete or arrange for completing the contract should the original contractor default. In the event of a contractor default and surety takeover of a contract, as determined through contractual action by the contracting agency and notification to the Office of the State Comptroller (OSC) as specified below, OSC will update the Statewide Financial System (SFS), allowing future payments under the contract to be appropriately directed to the surety.

Through the process documented below, OSC will update the New York State Vendor File information for the defaulted contractor to route future payments under the contract to the surety. The contract record in the SFS will continue to be identified by the original NYS Contract # and will continue to reference the defaulted (original) contractor, not the surety vendor.

CONTRACTS APPROVED BY OSC

To obtain OSC approval of a surety takeover of a contract originally approved by OSC, an agency is required to create a transaction in the SFS that amends the original contract, route the transaction to OSC for approval, and submit the following to OSC:

• A Single Transaction Summary (STS) or an AC 340-S for the amendment sequence transaction, with “Surety Takeover” indicated in the NYS Contract Description field;
• Surety information, including the surety’s New York State Vendor ID;
• A summary of the events leading to the termination of the original contractor;
• A copy of the notice of termination to the original contractor; and
• A copy of the executed surety takeover agreement.

CONTRACTS NOT SUBJECT TO OSC APPROVAL

For a surety takeover on a contract that was not subject to OSC approval (i.e., a T-contract), the contracting agency must send correspondence to the OSC Bureau of Contracts’ Construction Team, identifying the NYS Contract #, the agency Business Unit / Department ID, the vendor name and NYS Vendor ID of the original (defaulted) contractor, and the vendor name and NYS Vendor ID of the surety. No STS or AC 340-S should be submitted for a surety takeover on a contract that was not subject to OSC approval.

Since the vendor information for the contract will continue to reflect the original (defaulted) contractor, the agency may want to record the takeover on the contract record in the SFS for its own purposes. This can be done by creating an amendment transaction in the SFS with a NYS Contract Description indicating a surety takeover has occurred. If an agency elects to create such an amendment transaction in the SFS, the agency must select an Audit Type in the SFS that does not require OSC audit. For additional instruction on this topic, visit job aid for a listing of Audit Types and their descriptions published to SFS Coach. SFS Coach is accessible from the SFS home page after logging in with your SFS user ID and password.

ALL CONTRACTS

It is recommended that the agency include provisions in the original procurement requiring that, in the event of a surety takeover, surety payments will be made via Automated Clearinghouse (ACH) payments. At the time of the takeover, if the original procurement did not include such provisions, the agency should obtain the surety vendor’s agreement to receive ACH payments. Payment via ACH will ensure timely and accurate processing of payments under agreements where surety takeover has occurred. (See Chapter XII, Section 8.D - Contract Assignments and Sureties of this Guide, for additional information).

Please note that sureties will not be able to view contracts and payments for surety takeover contracts through E-Supplier, as the information for the contract will continue to be associated with the original (defaulted) contractor. Additionally, all existing and future purchase orders associated to the contract will reference the original (defaulted) contractor. Payments made to the surety under a contract where a surety takeover has occurred can be viewed in the SFS by the contracting agency at the payment level.

Process and Document Preparation:

SFS users will create an amendment transaction using the appropriate Audit Type. Users must identify the transaction as a surety takeover in the NYS Contract Description field. No changes to contract term or amount in SFS, or to pre-encumbrance balances are required for surety takeovers. For transactions subject to OSC approval, users will generate either a STS or AC 340-S and submit it with the required procurement record documents as identified above to OSC.

OSC will update the vendor record of the original (defaulted) contractor in the NYS Vendor File with an Offset Location to allow future contract payments to be routed to the Comptroller's account so they can be paid out to the Surety on a separate payment voucher using the Sureties Supplier ID#. (See Chapter XII, Section 8.D - Contract Assignments and Sureties of this Guide, for additional information).

Information related to updating the payment information for a specific vendor can be found in Chapter X - Guide to Vendor/Customer Management of this Guide.

Guide to Financial Operations

REV. 01/13/2016