Increase Your Credibility with a Surety Bond By Floyd Arthur

As a contractor, you know that your reputation is your

most important asset, so you

strive to complete all of your projects on budget and on

time. Nonetheless, when you

are working on large projects with many moving parts, you

know that something is

certain to go wrong. In most cases, these problems are

minor and easily remedied,

causing nothing more than slight cost overruns or short-

term delays. Occasionally,

however, their effects can be devastating—even preventing

you from completing a

project at all. It’s for these rare occasions that surety

bonds were designed.

What Is a Surety Bond?

In general terms, a surety bond is a contract between

three parties:

* The principal: The construction professional who

contracts to perform work.

* The obligee: The agency or client for whom the work

is being performed

* The surety: The company that issues the bond and

guarantees the

contractor’s obligations under the contract.

If the contractor fails to fulfill the terms of its contract with

the obligee, the surety

fulfills the contract (for example, by hiring a new contractor) or

pays the obligee for

any damages incurred. Unlike an insurance policy, however, the contractor is

required to reimburse the surety for its loss.

Either the principal, the surety or both can be sued for the

bond, and both can be held

liable for the entire amount guaranteed.

In the construction industry, there are four types of surety bonds:

* Bid bonds, which ensure that the firm that bids on a

contract will enter into

the contract if it wins the bid

* Payment bonds, which ensure that the contractor

pays subcontractors and

suppliers for their work

* Performance bonds, which ensures that the contractor

performs the work in

accordance with the terms of the contract

* Ancillary bonds, which ensure non-performance

related requirements

When Are Surety Bonds Required?

Surety bonds are required for any federal construction

contract valued at $150,000 or

more, and many state and local governments require

them as well. Additionally,

many private entities require bonding for large

commercial projects.

How Do Contractors Qualify for Surety Bonds?

A bond is a guarantee of reliable performance, so

sureties screen all applicants

carefully before underwriting their work. Although each

company has different

criteria, the evaluation typically includes four

components. These include:

Financial stability: The surety evaluates the company’s

financial stability based on

a review of its business operations, financial statements

and credit score. Financial

statements should be well-organized and, if possible,

prepared and maintained by a

CPA. The business also needs good cash flow, a history of

timely payments to

subcontractors and vendors, and a good

relationship with a bank.

Integrity: To evaluate the integrity of a business, the

surety looks at every level of

the company’s operations, including accounting practices,

record keeping and human

resource management. It may also require letters of

recommendation from business

contacts, such as customers, suppliers and

employees.

Longevity: Longevity refers not just to the length of

time a company has been in

business, but also to the way the business is run. The

surety reviews the company’s

business plan and the plan for continuing operations when

the owner leaves. It also

looks at employee turnover, and whether supervisors and

managers have sufficient

experience to manage the project it is being asked to

guarantee.

Capacity: This is an evaluation of the resources the company

has at its disposal. If

the surety determines that a company has “too much on

its plate” or is overextended

financially, it may decline the bond even if all other

factors are in place.

Getting qualified for a surety bond may seem like a daunting

process, but it is easier if

you have an experienced agent to help you prepare.

Our construction insurance

experts have a great deal of experience in the bonding

process, and can assist you in

finding the resources you need. We are available Monday

through Friday from 9 a.m.

to 6 p.m., so call 516-292-3780 to schedule your

appointment today. Or, if you

prefer, request a free consultation online now and

we will get back to you within

one business day.

Carmoon Group Ltd. Business Insurance

Hempstead New YorkGet your Free 30-minute consultation

www.caroongroup.com/contact-us/