We have been dedicated exclusively to providing bonds for contractors for 40 years, and we’ve heard this question at least 40 times!
It’s frustrating for contractors. Everyone knows surety bonds are hard to get, but it is really maddening when your less capable competitors are bidding public work and you can’t get across the goal line. What is the missing ingredient? Can we name the secret that answers this question?
The process of qualifying for bid and performance bonds is based on people and paper. The contractor is interviewed and evaluated. That’s the people part. A file is gathered and the paperwork is reviewed. What can cause a perfectly capable contractor to not qualify for bonding? The answer may be the paperwork.
Secret #5 was “The Three C’s of Bonding – Plus One!” It touched on this important point. In our experience, the most common area where capable and bond worthy contractors fall down is in the creation of their file.
The people part of the process is obviously important. If the underwriter is uncomfortable with the applicant, guess what: No bonds. The paperwork doesn’t matter if the human element fails.
However, it is equally true that the paperwork must achieve its goal. And what is that goal? It is CREDIBILITY. The difference between two equally capable contractors, where only one is bonded, may be the failure to present a convincing file.
When reviewing a new account, bond underwriters know what is normal and believable. Contractors who fail to meet these expectations will be rejected. Think of an extreme example: If you were evaluating the file, would you be more likely to believe an applicant’s self-serving comment that they have $100,000 in the bank, or an independent CPA firm that issued a report confirming they verified such an asset? HOW the info is presented can make all the difference.
It’s just that simple. The purpose of the file is to establish the contractor’s CREDIBILITY for all who read it, including those who will not actually meet the applicant. For them, their decision-making is based solely on the credibility and content of the file.
What are some of the most common paperwork deficiencies that derail contractors?
- Lack of credible financial information. They don’t have a year-end financial statement. Maybe the accounting method is unacceptable or they should have a CPA prepared report but don’t. Sometimes the financial reports contain arithmetic errors and have sections missing.
- Bad advice. Actions taken by management can make it harder to obtain bonds. Borrowing money, investing and even the choice of accounting methods can have an impact.
- Incomplete files. Many contractors start but fail to complete. Their energy is focused on “making money,” so they never take the time to complete their bond submission.
We don’t want to over simplify the process. Each company is different, and there are nuances to developing each applicant to assure their strengths and capabilities are showcased. We are not intending to explain HOW to establish credibility. Out point is that unless it is established, there are no bonds – regardless of how capable the contractor may be!
FIA Surety is a NJ based bonding company (carrier) that has specialized in Site and Subdivision Bonds since 1979 – we’re good at it! Call us with your next one, Bid and Performance bonds, too.
Steve Golia: 856-304-7348
First Indemnity of America Ins. Co.
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I absolutely love your posts. In looking back at past posts, it barely touches on personal âcreditâ history (another âCâ). How an individual pays his personal credit/bills can be directly related to how he pays his business credit/bills.
Of course it also follows that they have an employee that also understands this concept with their knowledge and experience of financial reporting and A/P. I had a guy just they other day that based on his credit, he went from an ultra preferred rate to standard all because his employee didnât pay the bills when they came in. And if they did, they were 60-90 days late. A direct impact on his commercial and contract premiums and bond ability.
I look forward to receiving your next post.
Judy Shively, Bond Manager
Koty-Leavitt Insurance Agency
Address: 6992 E Broadway Blvd, Tucson, AZ 85710
Phone: 520-571-1900 | Fax: 520-571-9667 | firstname.lastname@example.org
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