Many contractors find that the surety bond process can be complex. But, having a competent and knowledgeable surety bond producer is the first step to making sure your project will get underway. By answering the following questions, a contractor may be able to determine if there may be a delay in approval.
Questions to Consider:
1. Is there already a claim open with the current surety?
If another application has not yet been approved, that may be a warning sign that there is a reason for the delay. The best way to correct this is to (a) resolve any issues with the surety bond claim and (b) work with the surety bond producer, if both parties cannot resolve the issue on their own.
2. Is the project within the realm of the contractor’s expertise?
If not, the underwriter may worry that the lack of understanding of the project may delay it. The best way to remedy this is to explain why the contractor is bidding on the project, how the contractor will avoid and/or solve any potential risks and why the contractor is seeking this particular project.
3. Is the project outside of the home turf?
If the contractor is bidding on a project away from their geographical headquarters, this may be a warning sign. Underwriters might wonder if the contractor has put into consideration travels expenses or pricing of material in the area. Just as in the previous example, the contractor should submit the reasons for taking the job, how they will handle any risks and proof that they are able to complete the project.
4. Who are the key players in the success of the project?
If a contractor is relying too much on a key employee, that may compromise the completion of the project. It is important that the owner of the construction company is aware of everything that is going on. This includes the contractor’s involvement in the project from beginning to end. Primary reliance on an outside person may jeopardize a surety bond’s approval.
5. Do you know your surety bond producer?
Has the contractor worked with him or her before? Underwriters and surety bond producers work closely together. If any of the other criteria mentioned are in question, then a surety bond producer may be able to help answer any questions that the underwriter may have about the contractor. In other words, the surety bond producer may vouch for the contractor’s reputation.
6. Did you bite off more than you can chew?
If a contractor is applying for a project that is bigger than any other project they’ve completed to date, this may be a warning sign. Subsequently, the underwriter may wonder if the contractor can handle the project. The underwriters is more likely to approve a surety bond if there is proof of the contractor’s reliability. But, if the contractor is adamant that they can complete the project, submitting a clear plan as to how any adverse risks will be handled, what proof there is that the contractor can complete the project on time and any other reasons why the contractor is taking on the project, will help to give the underwriter confidence in the contractor’s abilities. This is documentation also known as a Work In Process Schedule.
7. Have you submitted a complete and quality financial information, prepared by a CPA (Certified Public Accountant)?
A major part of approving surety bonds is making sure that the financial means are there to complete the project. If this is in question, the surety bond applications may be delayed, or worse, denied.
• Having a good relationship with your surety bond producer can help you overcome hurdles, such as bidding on projects out of your geographical location and expertise.
• Providing documentation and a “game plan” as to how the contractor will overcome adversity can help any sort of uncertainty the underwriter may have.
• The application will have financial weight behind it if thorough and complete financial records (both personal and professional) are provided.