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
theconstructionuniversity.com
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
http://www.nasbp.org
Surety and Fidelity Association
of America
(202) 463-0600
http://www.surety.org
Minority Business
Development Institute
(609) 456-0818
http://www.minoritybdi.org/contact.shtml
Barnes Denning
www.barnesdennig.com
(513) 241-8313
Dohn & Maher Associates
http://www.dohn.com
(847) 303-6800
The Graham Co.
http://www.grahamco.com
(215) 567-6300
Alston & Bird
http://www.alston.com
(213) 576-1000
Travelers
http://www.travelers.com
CBIZ MHM
http://www.cbiz.com
(610) 862-2249
Surety Information Office
SIO.org
U.S. Small Business
Administration (SBA)
www.sba.gov/OSG
(202) 205-6540
Construction University is produced by Better Roads and
presented by Case Construction Equipment
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