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Surety Bonds

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

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  1. Surety Bonds The Sensible Choice For Managing Risk

  2. 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?

  3. Can Surety Bonds Help You? • Bid Bond • Performance Bond • Payment Bond

  4. Surety Bonds vs. Traditional Insurance

  5. Contract Surety Bonds • Bid Bond • Performance Bond • Payment Bond

  6. Contract Surety Bonds • Bid Bond • Performance Bond • Payment Bond

  7. Contract Surety Bonds • Bid Bond • Performance Bond • Payment Bond

  8. Fundamentals of Surety Contractor default is preventable Surety companies & producers prequalify contractors Surety companies back the bond with their own assets

  9. The 3 Cs Of Prequalification C Capital Capacity Character

  10. Analyzing Financial Strength C Capital Financial statements Working capital Work-in-progress Indemnity

  11. Evaluating Ability To Perform C Capital Financial statements Working capital Work-in-progress Indemnity Capacity Resumes Contingency plan Business plan Equipment

  12. 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

  13. Reviewing Business Ventures • Document business commitments that can affect the contractor’s business • Owning property • Side ventures Surety

  14. Contractor Failure Source: Dun & Bradstreet

  15. Why Do Contractors Fail? Inadequate Management New Owner Failure Over Expansion Change in Scope Failure Sub Failure Materials Shortages Cost Escalations

  16. Why Do Contractors Fail? Economic Downturn Inclement Weather Failure Failure Onerous Terms Work Environment Death or Illness of Key Employee

  17. Claims Principal Obligee Surety

  18. 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

  19. Responsibility Of The Surety • Acknowledge claim • Investigate claim • Determine & fulfill obligations Surety

  20. Performance Bond Protection • Re-let the job • Provide replacement contractor • Retain original contractor • Reimburse owner penal sum Surety

  21. Payment Bond Protection • Assures payment • No mechanics’ liens • Keeps subcontractors on the job Surety

  22. Surety Bonds vs. Letters of Credit

  23. The Value Of Surety Bonds • Bid Bonds • Performance Bonds • Payment Bonds

  24. The Value Of Surety Bonds • Bid Bonds • Performance Bonds • Payment Bonds

  25. The Value Of Surety Bonds • Bid Bonds • Performance Bonds • Payment Bonds

  26. Cost of Surety Bonds $

  27. The Underlying Agreement • Look at obligations • Determine risks • Match capable principal to fulfill agreement Surety

  28. 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

  29. 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

  30. 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

  31. 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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