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Surety Bonds. The Sensible Choice For Managing Risk. Can Surety Bonds Help You?. How do you evaluate & manage risk? How do you ensure projects are completed on time, on budget, and to contract specifications? How do you ensure contractors successfully meet obligations?.

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Surety Bonds

The Sensible Choice For Managing Risk


Can Surety Bonds Help You?

  • How do you evaluate & manage risk?

  • How do you ensure projects are completed on time, on budget, and to contract specifications?

  • How do you ensure contractors successfully meet obligations?


Can Surety Bonds Help You?

  • Bid Bond

  • Performance Bond

  • Payment Bond


Surety Bonds vs. Traditional Insurance


Contract Surety Bonds

  • Bid Bond

  • Performance Bond

  • Payment Bond


Contract Surety Bonds

  • Bid Bond

  • Performance Bond

  • Payment Bond


Contract Surety Bonds

  • Bid Bond

  • Performance Bond

  • Payment Bond


Fundamentals of Surety

Contractor default is preventable

Surety companies & producers prequalify contractors

Surety companies back the bond with their own assets


The 3 Cs Of Prequalification

C

Capital

Capacity

Character


Analyzing Financial Strength

C

Capital

Financial statements

Working capital

Work-in-progress

Indemnity


Evaluating Ability To Perform

C

Capital

Financial statements

Working capital

Work-in-progress

Indemnity

Capacity

Resumes

Contingency plan

Business plan

Equipment


Assessing Reputation

C

Capital

Financial statements

Working capital

Work-in-progress

Indemnity

Capacity

Resumes

Contingency plan

Business plan – short & long term

Equipment

Character

Reputation

Relationships

References


Reviewing Business Ventures

  • Document business commitments that can affect the contractor’s business

    • Owning property

    • Side ventures

Surety


Contractor Failure

Source: Dun & Bradstreet


Why Do Contractors Fail?

Inadequate

Management

New

Owner

Failure

Over

Expansion

Change in

Scope

Failure

Sub

Failure

Materials

Shortages

Cost

Escalations


Why Do Contractors Fail?

Economic

Downturn

Inclement

Weather

Failure

Failure

Onerous

Terms

Work

Environment

Death or Illness

of Key Employee


Claims

Principal

Obligee

Surety


Expediting The Claims Process

  • Clearly define default in contract

  • Submit status reports to surety

  • Promptly notify surety of performance or payment problems

  • Owner must file formal declaration of default


Responsibility Of The Surety

  • Acknowledge claim

  • Investigate claim

  • Determine & fulfill obligations

Surety


Performance Bond Protection

  • Re-let the job

  • Provide replacement contractor

  • Retain original contractor

  • Reimburse owner penal sum

Surety


Payment Bond Protection

  • Assures payment

  • No mechanics’ liens

  • Keeps subcontractors on the job

Surety


Surety Bonds vs. Letters of Credit


The Value Of Surety Bonds

  • Bid Bonds

  • Performance Bonds

  • Payment Bonds


The Value Of Surety Bonds

  • Bid Bonds

  • Performance Bonds

  • Payment Bonds


The Value Of Surety Bonds

  • Bid Bonds

  • Performance Bonds

  • Payment Bonds


Cost of Surety Bonds

$


The Underlying Agreement

  • Look at obligations

  • Determine risks

  • Match capable principal to fulfill agreement

Surety


The Owner’s Responsibilities

  • Provide working set of plans and specifications

  • Establish terms of the agreement

  • Ensure full & timely payment

  • Maintain adequate insurance

  • Pay property taxes

  • Communicate

Owner


Bond Specifications

  • Owner specifies surety bonds in contract documents

  • Contractor contacts surety bond producer

  • Producer guides contractor through prequalification

  • Contractor obtains bonds & delivers to owner


Qualify Your Contractor’s Surety

A.M. Best Companywww.ambest.com

Dun & Bradstreetwww.dandb.com

Standard & Poor’swww.sandp.com

Moody’swww.moodys.com

Treasury Dept.www.fms.treas.gov/c570/c570.html

State Insurance Dept.www.naic.org


For More Information

Surety Information Office

1828 L St. NW, Suite 720

Washington, DC 20036

202-686-7463 | Fax 202-686-3656

www.sio.org | sio@sio.org


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