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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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Presentation Transcript
surety bonds

Surety Bonds

The Sensible Choice For Managing Risk

can surety bonds help you
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 you1
Can Surety Bonds Help You?
  • Bid Bond
  • Performance Bond
  • Payment Bond
contract surety bonds
Contract Surety Bonds
  • Bid Bond
  • Performance Bond
  • Payment Bond
contract surety bonds1
Contract Surety Bonds
  • Bid Bond
  • Performance Bond
  • Payment Bond
contract surety bonds2
Contract Surety Bonds
  • Bid Bond
  • Performance Bond
  • Payment Bond
fundamentals of surety
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
The 3 Cs Of Prequalification

C

Capital

Capacity

Character

analyzing financial strength
Analyzing Financial Strength

C

Capital

Financial statements

Working capital

Work-in-progress

Indemnity

evaluating ability to perform
Evaluating Ability To Perform

C

Capital

Financial statements

Working capital

Work-in-progress

Indemnity

Capacity

Resumes

Contingency plan

Business plan

Equipment

assessing reputation
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
Reviewing Business Ventures
  • Document business commitments that can affect the contractor’s business
    • Owning property
    • Side ventures

Surety

contractor failure
Contractor Failure

Source: Dun & Bradstreet

why do contractors fail
Why Do Contractors Fail?

Inadequate

Management

New

Owner

Failure

Over

Expansion

Change in

Scope

Failure

Sub

Failure

Materials

Shortages

Cost

Escalations

why do contractors fail1
Why Do Contractors Fail?

Economic

Downturn

Inclement

Weather

Failure

Failure

Onerous

Terms

Work

Environment

Death or Illness

of Key Employee

claims
Claims

Principal

Obligee

Surety

expediting the claims process
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
Responsibility Of The Surety
  • Acknowledge claim
  • Investigate claim
  • Determine & fulfill obligations

Surety

performance bond protection
Performance Bond Protection
  • Re-let the job
  • Provide replacement contractor
  • Retain original contractor
  • Reimburse owner penal sum

Surety

payment bond protection
Payment Bond Protection
  • Assures payment
  • No mechanics’ liens
  • Keeps subcontractors on the job

Surety

the value of surety bonds
The Value Of Surety Bonds
  • Bid Bonds
  • Performance Bonds
  • Payment Bonds
the value of surety bonds1
The Value Of Surety Bonds
  • Bid Bonds
  • Performance Bonds
  • Payment Bonds
the value of surety bonds2
The Value Of Surety Bonds
  • Bid Bonds
  • Performance Bonds
  • Payment Bonds
the underlying agreement
The Underlying Agreement
  • Look at obligations
  • Determine risks
  • Match capable principal to fulfill agreement

Surety

the owner s responsibilities
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
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
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
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 | [email protected]

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