Better Roads

September 2013

Better Roads Digital Magazine

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ditionally, for a new contractor, the surety company will look at how much money the principal is investing in the company. A company with more labor will need more capital on hand to prove it can meet payroll, Dohn says. To judge capacity, the underwriter assesses past performance. "If it's a new type of work or an unfamiliar owner, the underwriter will be skeptical and ask a lot of questions," Marquet adds. Goodman indicates when seeking a bond for a larger contract, the contractor should supply audited financial statements. They are more detailed and contain more information. "Surety companies like to see CPA-prepared financial statements instead of in-house financial statements," Goodman says. "They are looking for stability, financial performance and metrics on bond capacity of current assets vs. liability. A normal calculation for bonding capacity is 10 times that working capital amount." Capacity may be lower depending on costs associated with other contracts. Having more cash on hand will increase working capital and help the bonding process. "They are trying to figure out how much liability you can handle in a given time period," Johnson says. Financial statements prepared by an accountant experienced with construction accounting standards often makes it easier for the underwriter, adds Marquet. 9 STEPS TO GETTING BONDED Getting bonded will give you more bidding opportunities and help establish your firm as a serious player in your local market. Plus, it gives you access to an adviser who knows construction's ups and downs. Here's are the initial steps to the path to being bonded. 1 Start the process well in advance. Depending on the circumstances, it can take one to several months to successfully obtain a bond, and it must be in place before you bid on a project that requires bonding. 2 Get bonding agent recommendations from other contractors. Another source is the National Association of Surety Bond Producers, An independent agent works with a number of surety companies. 3 Listen to the bonding agent. A good agent will help coach you through the process, helping you make a good impression. 4 Get your financial house in order. If you have cash flow problems, you'll likely have more trouble finding a bond. If you're starting a new company, the surety will look at how much money you're personally investing in the company. 5 Know what areas will be scrutinized. What experience do you have? How much equipment? Labor? 6 Organize. Several things will be required: an organizational chart, resumes of key employees, contingency plans, a business plan, a schedule of current jobs, a list of the largest jobs you've completed to date, evidence of a line of credit with a bank, tax returns, three years of third-party CPA-prepared financial statements, and letters or recommendation and references. 7 Expect an on-site visit. The surety company will want a first-hand assessment of your organization, your equipment fleet and your personnel. 8 Give a heads-up to your references. Let them know ahead of time that they may be contacted by a bonding firm as part of this process. 9 Expect progress reports. Securing the bond is a first step; the surety will often ask for updates to your financial picture. continued Better Roads September 2013 23 ConstructionU_BR0913.indd 23 8/29/13 1:17 PM

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