Better Roads

September 2013

Better Roads Digital Magazine

Issue link:

Contents of this Issue


Page 26 of 82

If all the paperwork checks out, a representative from the surety company will visit the contractor, assess the organization and status of the equipment fleet, and meet project managers and other personnel. "It's more than a financial analysis," Coyne says. "A lot of pieces go into deciding whether the contractor is capable of doing the work the company wants to bond." Timing and pricing for bonding Timing depends on how well the contractor has prepared the documentation and can prove a good track record performing similar or larger jobs. "It depends on the scope of what you normally do and what you are asking for," Dohn says. "If you have the right information, the underwriting is straight forward." You should plan on a month or more of prequalification preparation, with more time needed to obtain financial statements. The bond must be in place before bidding on the work. The U.S. Small Business Administration (SBA) offers a bonding program for smaller contractors. The underwriting process is similar, but the SBA guarantees a portion of the bond, Marquet says. The surety company may seek that guarantee. "The surety companies are betting the contractor has the financial wherewithal to perform," Johnson says. As added insurance, the surety company often includes an indemnity clause, saying that the contractor will pay it back if the surety has to complete any work. Also, the surety company usually asks for a personal guarantee from the principals of the firm. Defaults happen all the time, Johnson reports, particularly during the last downturn. Owners can only declare contractors in default if they have fulfilled all of their contract obligations, including paying on time, Johnson adds. The surety company will conduct an independent analysis of the situation, and that can serve as protection for the contractor if the owner hasn't been acting in good faith. Performance and payment bond premiums range from 1 percent to 2.5 percent of the amount of the contract being bonded. The fee is based on financial performance and company stability. Once a contractor is established with a surety company, the process of bonding new work goes much faster. However, even on new accounts, Dohn says he has approved bonds within 24 hours. Timing depends on the quality of the information provided by the contractor. As Coyne says. "It's a longterm process." – Debra Wood Visit to learn more about how to keep your business healthy. While you're there, check out tips, infographics and previous articles, including last month's article on Marketing. For further information: National Association of Surety Bond Producers (202) 686-3700 Surety and Fidelity Association of America (202) 463-0600 Minority Business Development Institute (609) 456-0818 Barnes Denning (513) 241-8313 Dohn & Maher Associates (847) 303-6800 The Graham Co. (215) 567-6300 Alston & Bird (213) 576-1000 Travelers CBIZ MHM (610) 862-2249 Surety Information Office U.S. Small Business Administration (SBA) (202) 205-6540 Construction University is produced by Better Roads and presented by Case Construction Equipment Better Roads September 2013 25 ConstructionU_BR0913.indd 25 8/29/13 1:17 PM

Articles in this issue

Links on this page

Archives of this issue

view archives of Better Roads - September 2013