Applying For a Contract Surety Bond

Applying for a contract bond (aka bid, payment or performance bonds) is similar to applying for a business loan. Surety Bonds are financial guarantees where the bonding company agrees to complete a contractual obligation if the contractor cannot.

THE PROCESS

It is important to realize that each Surety Company has its own specific standards and requirements for evaluating a contractor for bonds. Nevertheless, there is certain common information which all sureties need for proper evaluation:

1. A completed and signed contractors bond application. This is provided by the bond agent you have selected.

2. A resume of all key employees of the organization.

3. A copy of the contract that will be bonded.

4. Bank references describing balances and credit lines

5. Supplier references- at least three major suppliers describing the business relationship and credit terms.

6. Evidence of general liability and worker's compensation insurance on an ACCORD CERTIFICATE Form.

7. Financial statements (balance sheet, income & expenses).
   - Personal statements on all owners.
   - Corporate year end statements three years back if available and a current interim statement.
   Depending on the size of the bond the surety may require a CPA compiled, Review or Audit

8. A schedule of current work-on-hand along with an accounts receivable and payable report.

9. Your personal indemnity. A surety company will require you and your spouse to sign a personal indemnity agreement to assure you will stand behind your company. If your company fails to complete the bonded contract you will be expected to pay the surety back for its loss.

WHY SO MUCH INFORMATION?

Bonds are not provided routinely. A contractor must qualify for a bond. The surety wants to know that your company is well managed, profitable and that it keeps its promises, deals fairly and performs its obligations promptly.

THE ROLE OF THE BOND AGENT

A surety bond agent is usually an insurance agent that has a special expertise in bonds and/or construction insurance. The bond agent will gather the necessary information to propose your application to those bonding companies that best fit a contractor's size, expertise and financial situation. The bond agent may make recommendations to improve your chances of approval. The bond agent generally receives compensation for his or her efforts when a bond is approved or "written". This takes the form of a percentage commission paid by the bonding company based on the bond premium amount. Agents may request an upfront application fee due to the large amount of time and effort involved in the application process.

CONCLUSION

Even after all this information is given to the surety approval is not guaranteed. The bond will be granted only if the surety thinks the contractor is qualified to perform the contract and financially capable of withstanding the numerous risks inherent in the construction business. Your decision to bid work requiring construction bonds should be based on long term considerations. You should also expect the process to take some time.

For more information contact an insurance agency specializing in surety bonding. Surety Advisors, LLC, www.suretybondservices.com, is a bonding agency in Houston, Texas whose specialty is contract, license, permit, probate, court and fidelity bonds.