How the Pandemic Impacted the Need for E-Signatures in Construction

Ben Conry
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The pandemic brought about many changes for businesses in practically every industry. However, some industries and business models adapt to remote work better than others. While construction isn't a business that requires contractors and subcontractors to sell products directly to customers all day, the vast amount of official paperwork necessary for every project demands a lot of hand-to-hand contact in the form of signatures. That's where e-signatures come in.

Many types of businesses easily acclimatized to some degree of remote work and the communication required to accomplish a variety of tasks without face-to-face contact. But the pandemic left the construction industry scrambling to catch up. After facing unique challenges like moving the back office to remote work and incorporating technology into on-site communications, many construction companies are still using the same old processes for producing official signatures on a variety of important forms. The truth is, during a pandemic, executing physical copies of bonds is a health risk.

Scientists and doctors are making significant strides in the fight to control COVID-19. But we're not out of the woods yet. Many stringent safety regulations and social distancing mandates are still in place and will likely be there in the months to come. For the safety of employees, customers, and even the general public, it's essential to turn to a workable solution that will allow the contractors and subcontractors to continue important work without contributing to the spread of the virus.

Signing Construction Bonds During a Pandemic

The nature of the construction industry makes navigating the necessary social distancing requirements of a pandemic while conducting "business as usual" a bit of a challenge. In an atmosphere with multiple teams, official paperwork, and an ever-changing landscape, bonds provide a type of insurance that the project will be completed correctly. They also ensure that the many people working to make it happen will get paid as promised. Not surprisingly, it takes many different documents to accomplish this feat during an ongoing project. Those documents are called bonds, and they need to be officially notarized and signed to be legal. 

Types of Construction Bonds

For workers in many industries, it's all too easy to think of a surety bond as one piece of paper passed between a company and a customer. Instead, every construction project requires a variety of surety bonds. When this paperwork isn't completed correctly, workers don't get paid. Companies can also face compliance penalties. These are some of the most common construction bonds:

Performance Bonds

This is protection for the owner. They guarantee that the work of the project will be completed as per the terms of the contract.

Payment Bonds

This is protection for lower-tier contractors, subcontractors, laborers, and suppliers that promises payment for completed services.

Bid Bonds

These give protection to a project owner. These bonds promise a contractor will sign a binding contract for the amount of their bid if they win the contract.

Maintenance or Warranty Bonds

This is protection for the owner that states local building regulations were applied. They also guarantee that the project will contain no faults or defects for a certain amount of time.

License Bonds

Often required by the state, license bonds guarantee that contractors have certain qualifications to safely complete a construction project.

Retention Bonds

A replacement for withholding of retention on a project, retention bonds guarantee that all work will be completed by the end of a project.

Supply Bonds

Protection for both contractors and the owner, supply bonds ensure that building supplies and materials will be provided for the project.

Each of the documents used during a construction project exists to allow large projects to be completed over a period of months or years. Without these bonds, it would be easy for payments to be overlooked and essential materials forgotten. 

The bonds required for each section of any construction project make essential social distancing practices impossible. But stalling construction projects essential for the growth of residential areas, cities, and states for the duration of the pandemic isn't a reasonable solution. E-signatures provide the same purpose as a wet signature. They also help everyone avoid the dangers of ignoring social distancing procedures.

E-Signatures Provide a Healthy Solution for General Contractors During the Pandemic

General contractor e-signing a bond on his tablet

We've discussed why e-signatures matter for contractors and subs in construction. Still, it's important to consider how the pandemic has impacted the need for e-signatures to stay healthy. The electronic execution of bonds isn't a new practice. For many, it provides a way to streamline another construction process that otherwise slows down the completion of projects and payment of workers. Signing documents electronically often provides convenience to both project owners and the contractors that complete the project. In fact, 42% of construction companies use an electronic signature solution.

The pandemic brings about an urgency to apply e-signatures in as many situations as possible. While e-signatures have been in place for many of the forms that pass hands in the construction industry, surety bonds typically require notarization. This leaves the question of e-signature use in the hands of your state. While some complications may arise, most people generally accept e-signatures during construction projects.

How E-Signature Processes Offer a Complete and Legal Solution for Construction Bonds

Understandably, there's a lot of doubt surrounding an entirely new process when surety bonds have always been done on paper. A wet signature, raised corporate seal, and notarization feels like a formal transaction that can't be erased. Of course, paper documents can be misplaced or damaged, but that's something most contractors are already familiar with. What many don't realize is that the current legislature supports the idea that electronic issuance of surety bonds meets the legal standards for the historic wet signature and notary requirements without endangering human health. 

The Uniform Electronic Transactions Act and ESIGN

The regulations that provided a framework for the legal use of an e-signature in commercial and government transactions were introduced in 1999. So it's definitely been around for a while. The Uniform Electronic Transactions Act (UETA) is a state law that established the legality of e-signatures for states that choose to adopt the guidelines in the regulation. 47 states have adopted UETA. But regulations in each state weren't identical, leading to conflicts from state to state. New York, Washington, and Illinois didn't adopt UETA regulations, but each state adopted its own laws regulating e-signatures.

In 2000, a federal act followed UETA to eliminate conflicts between state e-signature laws. The Electronic Signatures in Global and National Commerce Act (ESIGN) affirms that e-signatures have the same legally binding properties as a pen and paper signature. However, it doesn't override state laws. Instead, it preempts inconsistent state laws.

UETA and ESIGN both define the legality of e-signatures, but neither addresses the importance of notarization.

Remote Online Notarization (RON) Model Act

In December 2017, the Mortgage Bankers Association (MBA) teamed up with the American Land Title Association (ALTA). They worked together to prepare model legislation providing the framework for states to adopt an online remote notarization process. The process provides individuals with a safe and legal way to conduct a notarization online. RON is the process of electronically notarizing a document with audio-visual technology. Parties share documents electronically. The signing and notary process still occurs face-to-face, just in a virtual environment. This process allows surety bonds that must be notarized to be included in the types of documents that benefit from the e-signature process.

29 states have enacted RON laws. Due to pandemic restrictions, many states that haven't adopted RON have enacted policies for short-term emergency measures. To find a list of states taking emergency action to apply RON notarization during the pandemic, visit the National Notary Association web page. The need for virtual notarization and legal signatures will grow. So it's likely that more states will implement the use of RON permanently.

Upcoming E-Signature Legislature

In March 2020, Senate Bill 3533 Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 (the "SECURE Notarization Act”) was introduced to the house. If the SECURE Notarization Act becomes law in its current form, it would authorize U.S. notaries to perform remote online notarizations (RON) using audio-visual communications and tamper-evident technology in connection with interstate transactions. The future of this bill is currently unclear. But it would provide a comprehensive solution for all documents requiring a notarized signature.

The pandemic has introduced new reasons for construction companies to consider the use of e-signatures. It can improve a variety of processes during a project. Besides streamlining working and billing processes, e-signatures allow business to continue as usual without putting anyone's health at risk. To learn more about the use of e-signatures in construction, get in touch with the software professionals at Flashtract. You can also schedule a demo for an interactive view of how billing software can streamline your construction processes.

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