Surety Insider Reveals the Secrets of Maintaining and Expanding Your Company’s Bond Capacity
What You as a Contractor Can -- and Must Do -- to Keep Your Business "Bond-Worthy" -Get the Clout to Bid the Work You Want!
When a Handshake Isn’t Enough
Contract Bonding (Bid, Payment & Performance Bonds) Provides Protection to Owners and General Contractors from the risks of Contractor Default.
Survival is Dependent on the Ability to Bond
We are in the middle of one of the greatest general construction growth periods in our history. I want your company and mine to prosper during this unprecedented time.
I want to share some secrets about the underwriting and credit analysis that bonding companies universally use to determine who gets bonded and who doesn’t- secrets that are not well known outside of the surety industry, but which all contractors who have to bond should know.
I want to share this information with you because advice is a crucial part of the service we provide our clients. I am willing -- actually, I’m excited -- to reveal to you the secrets about bonding. Secrets that ensure your business won’t miss the unprecedented contract opportunities that are available!
Why would I just give these secrets away? Because it’s just as good for my business as it is for you. I want to let you in on the knowledge I have accumulated as a surety professional and insider. I want to do this because I have, time and time again found that generosity and the willingness to provide really great service come back to me- tenfold. In fact, that’s how I have built my business.
What if Your Surety Says…No More Bonds?
The Basics: Three “C” s of Surety Underwriting
Character - Honesty, discipline, leadership, performance under adversity
Capacity - Staffing, experience, records & management systems
Capital - Financial strength & liquidity.
...You won’t get $1 of Bond Credit.
Four Steps to Get the Bond Capacity You Want
Accounting- Surety companies want independent financial verification. They want reviewed- even audited annual financial statements. Get a CPA familiar with construction accounting- either percentage completion or completed contract methods of accounting.
Legal- Some contracts you just shouldn’t sign no matter how badly you need the business or how profitable you think they are. One-sided contracts and fine print can kill a business. You need an attorney to review construction contracts and liability clauses.
Banking- Surety companies know and understand that you need to have contingency financing. Get a banker that understands lending in your construction field.
Bond Agent- A surety bond agent is an insurance agent that has a special expertise in bonds and construction insurance. As independent businessmen and through their contacts and connections, they are in a unique position to introduce you to accountants, attorneys and bankers that have experience in construction. Most importantly, they are the key to arranging and managing your bonding relationship.
Personally Meet the Bond Underwriter
A good bond agent will make sure you personally meet the underwriter at least once a year. No amount of number crunching can substitute for an onsite assessment of the owner and organization to add confidence to an underwriters’ analysis.
Maintain the Relationship
Continual open communication between you, the agent and bonding company are essential. Depending on the frequency you need bonds, plan on delivering financial information semi-annually or even quarterly including a job status report that gives a snapshot of every job’s progress and profit. Be prepared to answer questions the surety may ask if they see:
Large costs and earnings in excess of billings
Substantial billings in excess of costs
Profit Margin Fade
Stick to Your Business Plan
Sureties understand and can accept the need to adapt to changing construction business conditions- they have to also. However, if you and the bonding company have agreed to a bond program based on your submitted business plan, expertise, volume and financials, any bond requests that vary wildly from your agreement or plan could be declined and raise serious questions about bonding any future work.
Inside Information for Those New to Bonds
6.5 Tips if you are New to Contract Bonding:
Tip 6.5- Get an Experienced Bond Agent
Surety Advisors, LLC is a bond only agency... I have 30 years experience serving construction clients, evaluating their expertise, their strengths, their weaknesses and their financials. I have also spent decades seeking bonding companies that have unique underwriting appetites and matching these sureties to the right contractors.
Whether you are looking to change your existing bond relationship or just thinking about arranging your first bond I hope this information has been helpful and you will call me to discuss your bonding needs. My staff and I are eager to help!
J. Mark Strange
IMPORTANT NOTE: While we specialize in Surety Bonds, this Website provides only a simplified description of bonds and is not a statement of contract. Wording may not apply in all states. For complete details of bonds and conditions, be sure to read the bond, including all endorsements, or riders, if applicable. Bonds CANNOT be bound, amended, or altered by leaving a message on, or relying upon, information in this Website or through E-Mail.