What would you do with this case? A little bit tough, but we put it together for our agent!
Details:
- A bid bond is needed for an upcoming opportunity, estimated contract amount $3,500,000.
- Client’s largest prior, completed contract was $2,100,000. New project is 66% larger.
- The client is new with our agent and they never obtained any sizable bonds, only credit based approvals. File is not set up for surety credit at the desired level. A $3.5 million contract typically requires CPA Reviewed financial statements on the % of Completion accounting method.
- Only has internal company financial statements on the Accrual accounting method.
- Contract includes contaminated soil removal/transport/disposal. Many sureties are unable to support such projects due to licensing requirements, insurance, and other limitations.
- Soil removal is subcontracted, 22% of the total contract, NO subcontract P&P bond provided. Such a bond would have protected the principal from failure of the subcontractor to perform a significant (crucial) aspect of the project.
- Client has a major hung receivable over 9 months old. This takes a bite out of their net worth – an important underwriting factor. It pushes their Debt to Equity ratio unfavorably and makes them less qualified for bank credit. When, if ever, will they collect the funds?
- Client already has a substantial backlog of work, two million dollar projects just started.
- What would you do with this one?
How FIA Surety supported it:
- Company and personal credit reports were strong.
- NQ, NW, D:E, NP all looked acceptable on the year-end statements.
- Open WOH projected good profits
- Recent interim company FS was strong
- Contract was normal work and location for applicant
- Personal FS added to the picture
- Company showed good longevity and stability
- They explained their game plan to collect the hung receivable by the end of the year.
- Subcontractor was a major company the principal has good experience using previously
- Client was very cooperative furnishing info to support their company FS.
- The bank likes them and their credit line is 100% available.
- Nine month contract, no special bond forms.
- Client will upgrade to a CPA Review at the next FYE.
- The principal and subcontractor both carry pollution insurance.
- Quarterly WIP schedules to monitor their profitabity and runoff. Program is full for now.
- Full indemnity, no collateral or escrow required.
This case didn’t need a magic wand to make it writable. We needed to grind out the details. We’re taking the client into new territory on the job size and the technicality of the underwriting. Our agent was a great facilitator – really kept things moving (we love that!)
Conclusion: Our agent aquired a new client. We delivered… and did so promptly.
Do you want this kind of flexible underwriting and processing speed for YOUR clients? We’re your “Go-To Carrier” for T-listed bonds in all states. Contract, Site and Subdivision Bonds up to $10,000,000.
P.S. Check out our Free CE School. We’ve added more states:
https://fiasurety.blog/2020/08/16/free-ce/
FIA Surety, a Palomar company http://www.fiasurety.com
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417