contract surety

This is NOT about the virus!

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We know you’re sick of hearing about the virus! Here is some good news for a change:

FIA is open to help you with Site and Subdivision Bonds!  Most sureties won’t write these but at FIA, it’s our specialty.

More good news: We also write Down-Payment Bonds for Home Builders, freeing up cash and credit for new projects.

Virus or no virus, projects are moving forward, and surety bonds are needed by developers and home builders. If you have an immediate need for a Site/Subdivision bond or want to replace an existing ILOC with a bond, call us at 856-304-7348.

FIA Surety: We’re OPEN for business!

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

#170: Why Developers LOVE Subdivision Bonds

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When developers and home builders start a new project, they must give security to the local township. This guarantees construction of the “public improvements.”

The security can be in cash, an irrevocable letter of credit (ILOC), or a subdivision bond (surety bond).

Why is a bond the best method?

  • Developers retain the use of their cash. Keep it available to acquire and finance new projects. Use it to solve problems. Remember, cash is king!
  • More control if there is a claim: They are processed through the bonding company. There is a discovery process. The developer has input and more control than with an ILOC. With an ILOC they can simply grab the developer’s money!
  • Better long term protection. These guarantees are hard to close, may drag on for years. The township is in no hurry to give up their security. It’s easy to renew the bond and you’re good for another year.

Developers and home builders love subdivision bonds – especially if they obtain them from one of the industry’s strongest players: FIA Surety. We have supported developers and home builders with subdivision bonds since 1979.

Call us for your next one or to replace existing security you have already filed.

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

Claim Your Free Surety Bond Gift!

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It’s easy to get in on our Free Continuing Education program. This is a gift from FIA Surety.

“One of the best CE courses I ever attended! Our producers really needed this information.”

Our program last week was a huge success.

Bonding 101 explores the theory of surety bonds including pricing, underwriting and an overview of the marketplace. We track a Bid and Performance Bond from birth to death. It’s all practical info producers need.

Currently, our courses are approved in NJ and PA. And we deliver the program at your location! This is FIA Surety’s free gift to you. Call us for details.

Since 1979 FIA has been a dependable provider of Bid, Performance, Site and Subdivision Bonds.

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

FIA Surety Success Story

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This was a tough case.

The contractor needed a performance bond. We reviewed the bond request form and noted the bid results: They were 100% below the second bidder!

We obtained the company’s fiscal year end financial statement. Our analysis revealed a negative working capital and their net worth had slipped below zero due to a net loss for the period. Pretty tough…

The agent was not a bonding expert, so it was up to us to find a way to help this account.

Collateral was not an option because of their weakened condition. If it hurts the contractor, it can’t be good for us.

We dug deeper to fully appreciate all of the applicant’s attributes:

  • The bid spread resulted from the fact that the project was specialty work and the second bidder was a general contractor. They would have to hire someone like our client to perform the job. This contributed to their significantly higher price. Also, the applicant documented a good profit margin in their price.
  • There were specific reasons for the net loss. Corrective actions were taken and current financial results were improved.
  • We identified the applicant’s additional financial resources – there were multiple credit lines available (unused) and personal cash.

We wrote the bond! The difference is that FIA has a team of seasoned professionals with many years of experience (since the ’70s!). We know how to get through these tough cases.

Site, Subdivision, Performance and Payment Bonds.

Now you know who to call.

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Free CE Update

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Love, Love, Love!
Love is in the air! We know you love free stuff, so get some here.

FIA Surety provided two free CE seminars in North Jersey recently. We’re doing one this week at an agency in Hatfield, PA.
It’s time to get your agency on our calendar. We have dates available in March. How do you set it up? Just give us a call. It’s that simple!

Speaking of simple, when you need a surety bond, we can make that simple too! Since 1979, First Indemnity of America (a carrier) has been making agents look great.

We’re your “can-do” market for:

  • Site and Subdivision Bonds
  • Bid and Performance Bonds
  • Deposit Bonds for home builders

What’s not to love?

Steve Golia 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

Godzilla Surety

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He’s big.  And for Godzilla, that works!

But when you’re dealing with bonding companies, do you want big, or would you rather have responsive, nimble, flexible…?

At FIA Surety, we have had the same senior management staff in place since 1979.  Tons of stability and experience.  Compared to the big “monsters,” we’re a smaller surety. How does that help you?

Example: This week we got in a Site Bond, a type of bond many sureties do not support.  It was a little complicated.  The title to the property changed hands and the names on the documents didn’t match up.  It took some digging but we still approved it within a day. Why?  Because we can.

Nimble.  Responsive.

For some transactions you need Godzilla.  But for many others, you want the flexibility and willingness of FIA Surety.  Call us!

  • Bid Bonds
  • Performance and Payment
  • Site and Subdivision Bonds
  • Deposit Bonds for Home Builders

Steve Golia: 856-304-7348
FIA Surety is First Indemnity of America Ins. Co.  (a carrier)

For more cool bond stuff, follow this BLOG!

Working Capital Magic!

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Working Capital: It is a key element for contractors when they apply for Bid and Performance Bonds.  Too low, and the bond or entire account may be rejected by the bonding company.  Primarily, this number is calculated once a year on the fiscal year-end financial statement.  If the Working Capital (WC) comes out low, you’re STUCK with it all year… or are you?  Are there ways to “poof!” magically find more working capital on an existing financial statement?  Why yes!

Here are three ways contractors and their insurance  / bonding agents may overcome a WC deficiency:

  1. Stockholder loan: The owner can Subordinate an existing loan to the surety.  This means the owner / creditor will not demand that the company / debtor repay funds the company has borrowed.  The Subordination removes the stockholder loan from current liabilities, thereby increasing WC.
  2. Underbillings: Accrual Method financial statements do not include the current asset called Costs and Estimated Earnings in Excess of Billings, or for short: Underbillings.  If a net Underbilling Asset is calculated, it will directly increase the WC analysis.
  3. Bank line of credit: Many analysts will add available bank credit to the WC analysis.

Note: All three of these ideas can be applied to the recent fiscal year-end statement.  You don’t have to wait for a new statement to use them!

Bonus Poof!

How to immediately increase the Net Worth (NW) analysis: Fixed assets, such as heavy equipment, are depreciated each year resulting in their declining value on the Balance Sheet. The carrying value of the asset may eventually be less than the actual “street value” of the machine.  This lost net worth can be re-captured by finding the current appraisal value.  For big and old companies, this can give a major boost to the NW calculation – and therefore the bonding.

We hope you find these four tips helpful.   They can literally improve the analysis of an existing financial statement.

Do ALL bonding companies want you to know these secrets?  Hmmmm…  We do!  FIA is a bonding company (carrier) that has served contractors and their agents since 1979.  We are flexible and creative surety bond experts.  Call us for Bid and Performance Bonds.  Call us for Site and Subdivision Bonds – our specialty!

Steve Golia, Marketing Mgr.  856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

#168 Be A Code Breaker! (Surety Bonds)

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The Enigma Machine was a famous encryption device used by the Germans during WWII to transmit coded messages. It allowed for billions of ways to encode a message, making it incredibly difficult for other nations to crack German codes during the war.

Enigma Machine

In this article, You will learn how to break a code, how to solve a mystery in 20 seconds or less – every time. It is a surety bond mystery: The key element that determines the nature of the bond and predicts the successful underwriting path.

Here are your clues.

  1. “KNOW ALL MEN BY THESE PRESENTS:”  These words are the common beginning of surety bonds.  You’ll see them over and over.
  2. “WHEREAS” will start one or more paragraphs which describe the circumstances in connection with the bond need.
  3. “NOW THEREFORE, THE CONDITION OF THIS OBLIGATION…” is the beginning of the promise in the bond.  It is the point of the bond guarantee and it determines the underwriting path.

Find the “NOW THEREFORE” paragraph and you can break the code.  What does it guarantee?  If it is the correct performance of a contract, the underwriting will concern the applicant’s ability to complete the work.  If the guarantee is to pay money when due, the underwriting will concern the applicant’s credit history and financial strength.  It makes sense.

Test your new skill

Ever hear of an ARC bond?  Probably not, but here is the “Now Therefore” clause for you to analyze:

NOW THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH that if the Principal shall duly comply with the provision of said Agreement with respect to all amounts owed to the Obligee, as in said Agreement provided, during the term of this bond as hereinafter provided, then this obligation to be void, otherwise to remain in full force and effect in law…

OK Code Breakers, what can we conclude?

  1. It promises compliance with an agreement, so we’ll want to review that document.
  2. The applicant must comply with respect to “all amounts owed to the Obligee,” so the bond is guaranteeing the payment of money in the future.
  3. How can we determine if they are likely to do that?  Need to get financial and credit info on the client.

So there you go!  In 20 seconds you scoped it out and already have an idea about the underwriting, difficulty in placing, and potential markets that may have an appetite.

The underwriting path always follows the nature of the guarantee, which you will find in the NOW THEREFORE clause.  It’s that simple to break the code!

What a great feeling when you deal with the real experts.  You know you’ll get fast, efficient processing by folks who really care.  Call FIA Surety with your next surety bond.

FIA Surety is First Indemnity of America Insurance Company based in Morris Plains, NJ.  We provide site, subdivision, bid, performance and other forms of surety bonds.

Steve Golia, Marketing Mgr.  856-304-7348

 

184. Surety Bond Quacks Like A Duck

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Isn’t that a great expression? “If it looks like a duck, swims like a duck…”

This article is about correctly identifying the type of surety bond.  It is a problem we see often: Cases where the wrong app was used, time wasted, etc.  It happened again this past week.

The agent called us with a performance bond need, about $10,000.  They has used a short form application and sent it to another surety that rejected it.  The reason given “the applicant was the principal.”  The applicant is always the principal, so this didn’t help.  We dug deeper.

The client and agent thought they needed a performance (P&P) bond, but we quickly identified it as a Site Bond – most sureties don’t do them. Let’s go through the key questions and characteristics that make it easy to recognize a site bond when it quacks.

Quick Primer:

A Performance and Payment bond guarantees a construction contract in which the Applicant / Principal is paid by the Obligee to perform the work.

Site Bonds are written with the city or township as Obligee, guaranteeing that a developer or property owner will build required “public improvements” at their own expense.

Here are three key questions to get you on the right quack:

1. Who is the Obligee that is requiring the bond?  On site bonds, it is always the township or city whose planning board has approved the project.

2. Is there a construction contract?  On site bonds there is no contract between the township and the property owner or developer. On P&P bonds there is always a contract between the principal and the obligee.

3. How did the need for the bond arise? On site bonds, the township or township engineer writes to the property owner describing the need for the bond, the work it will cover “public improvements” and the dollar value. On P&P Bonds there are written specifications (requirements) and a construction contract that talk about the bond.

Another clue that helped us quack this case was the low dollar amount.  You could get site bonds for less than $5,000 but it would be extremely rare to go that low on a P&P bond.

So now when a site bond lands on your desk, you’ll recognize it.  Any of your commercial clients could need one when they upgrade or modify their property. The next question is to choose a market.  Most sureties don’t write them – but WE DO!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site 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.

More cool bond stuff: Follow this BLOG in the upper right corner.

173. Bid Results / Sgt. Joe Friday

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    From 1951 to 1959 Dragnet was a defining police series that featured Jack Webb as Sgt. Joe Friday.  Joe was famous for an interrogation line he often used: “Just the facts, ma’am!”

When bonding companies issue bid bonds they need to gather facts, too. It is an important process with implications for both the surety and the contractor.  For mood music, click.

So here are the facts, ma’am!

Bid results are the various proposal amounts submitted by contractors pursuing a particular project.  The bids are submitted at a designated time and place.  The list of bidders “lowest, second, third, etc.,” including the company name and $ amount, are the bid results.

The first party to know this info may be the contractor. They often attend the bid opening and write down the results.  Remember, they have a vested interest in the outcome.  They’re hoping to acquire a new project.

It is important for them to report the results promptly to the bonding company.  Here’s why:

Timely Issuance of Performance Bond

If the contractor is low bidder (offering the most favorable price to do the work), an award can be expected. The performance and payment bond will be needed by a set date to avoid loss of the project.  Reporting the bid results is the first step in this process.

Excessive Bid Spreads

A “bid spread” occurs when there is a significant (>10%) difference between the low and the second bidder. This is a red flag for the surety and contractor. All the bidders wanted the work.  They spent time and money developing their proposal. An excessive bid spread means the low bidder has a unique advantage (better expertise, prior experience, special equipment, lower material prices, etc.) over the other bidders OR they made a bid mis-calculation and are underpriced. (*Why is this a concern?)

If the contractor has a special advantage, they must share this info with the bonding company in order to obtain the P&P bond when required. The surety must be confident that the project will be completed properly.

If they made an error, they must notify the obligee / project owner that they wish to withdraw their bid.  If done promptly, they may avoid having a bid bond claim (for failing to move forward.)

Restore Capacity

When a bid bond is issued, underwriters consider a portion of the contractors surety line to be in use – under the expectation that they may win the project and need a P&P bond. If the contractor / bidder is not the low bidder, the capacity is restored to their surety line to support another project – as soon as the surety is notified.

For all these reasons, the prompt reporting of bid results is necessary.  A tight bid is a win for the contractor and surety.  The bidder acquires additional sales volume and the surety books a premium.  It’s how we all make money.

* Why is an excessive bid spread a concern?

If the contractor proceeds with a project that is underpriced, they may end up losing money on the work.

It’s an issue for the surety too, because they are the guarantor of the project.  They must complete the work if the contractor defaults, and they rely on the fact that the contract amount is adequate to accomplish this.  If it is not, the surety could face a net loss.

Excessive bid spreads are bad for everyone, even the obligee. If they award an underpriced project, they may end up with poor workmanship, missed deadlines and possibly a defaulted contract, ma’am!

Want this expertise and creativity on your next Bid or Performance Bond? FIA Surety is a NJ based bonding company that can help! We have specialized in Bid, Performance, Site and Subdivision Bonds since 1979.

Steve Golia is Marketing Manager for FIA Surety.  Call Steve now: 856-304-7348

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