P&P bond forms

Developers and Home Builders: Important News!

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Important news for Developers / Home Builders and their Surety Bond Agents:

“Now more than ever, you need to protect your cash position.

As you start your new project, do not use cash or a cash backed Irrevocable Letter of Credit (bank instrument) to secure your obligation to the township. Instead, file a Subdivision Bond. Preserve your capital!”

We have specialized in this area since 1979. Call us for immediate service.

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

Surety Bonds: Pay Raise or Title?

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Enjoy this scene from Cheers “Woody: Raise or Title?”

We laugh at Woody being duped.  He went after the wrong prize, just like some agents when it comes to commissions.

Agents face this choice: Commission percentage or commission dollars?

You might think a higher commission percentage automatically means higher dollars, but slow down Woody: It ain’t necessarily so! Let’s do the math.

Example 1) Bond Amount: $1,000,000

Premium rate: 2% = $20,000

Commission Percentage: 30%

Commission Dollars: $6,000  

Example 2) Bond Amount: $1,000,000

Premium rate: 2.5% = $25,000

Commission Percentage: 25%

Commission Dollars: $6,250  

Interesting! A lower commission rate can yield higher commission dollars when the premium rate is higher.  When the premium rate goes lower, the commission dollars drop even more.  A 1% rate with a 30% commission yields only $3,000 commission!

What about sliding scales?  At 30% commission, the 25/15/10 rate delivers only $4,050 in commission dollars.

OK so here’s the conclusion: Focus on commission percentage and you may end up being Senior Bartender like Woody. When calculating income, the bond rate makes you a winner!

Since 1979 FIA has been a dependable provider of Bid, Performance, Site and Subdivision Bonds.  Call us with your next one.

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

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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

Surety Bond Challenge: Solve This Problem!

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A key vendor / supplier is demanding that a GC provide protection for their purchase agreement. However, the project owner did not stipulate a Performance and Payment bond on the contract and none was provided. The work has started and the contractor needs to get materials delivered from the reluctant vendor.

What are the possible solutions that may satisfy the vendor? Choose one!

  1. Issue a Payment Bond on the Purchase Agreement
  2. Issue a Performance & Payment Bond on the Purchase Agreement
  3. Bond the contract in a normal way (100% Performance & Payment)
  4. Issue only a Payment Bond on the contract

(1.) Issue a Payment Bond on the Purchase Agreement?
A. A vendors purchase agreement is not the same type obligation as a construction contract. A bond guaranteeing payment of the purchase agreement would be considered a Financial Guarantee Bond (Why?  See below *) They are more difficult to obtain than a Payment Bond, so that’s not be the best solution.

(2.) So what about issuing a Performance & Payment Bond on the Purchase Agreement?
A. This is also not an option due to the differences between the nature of a purchase agreement and a construction contract.  (Details below *).

(3.) Can we bond the contract in a normal way (100% Performance & Payment)? That Payment bond would cover all vendors, so it would cover the one in question.
A. Bonding a started project is always a red flag. The underwriters initial question is “Why do they want a bond now?” It does seem suspicious, like there may be a problem with the performance of the construction work or the owner received some negative info on the contractor. Maybe the contractor has a problem and the work is in jeopardy.
Another issue is the cost. If a bond was not originally required, the bond cost was not included in the contract price. This means a bond purchased subsequent to the execution of the contract will be paid for out of the contractor’s profit margin. The Principal / GC will be looking for the most inexpensive solution possible.
Keep in mind that the purchase order amount is less than the contract price, so bonding the contract would result in a bond higher (and more expensive) than actually needed.

(4.) Can we issue just a payment bond on the contract?
A. This too will be viewed as a red flag by the underwriters. Who asks for a payment bond but doesn’t want a Performance Bond? That would be unusual.

Summary
We have concluded that it will be difficult to retroactively bond the contract, the amount of the contract is more than the purchase order and only a financial guarantee bond can be issued on the purchase agreement, so a Performance Bond may not be the solution at all!

Our Solution
In this case, we offered Funds Administration instead of a bond. This was an inexpensive alternative, and provided an assurance for the vendor that bills would be paid in a routine manner. (The project owner pays the Funds Administrator who directly pays the vendor.)
Keep in mind, however, that the Funds Administrator has no obligation to the vendor. If there is an unexpected event, such as termination of the contract, the Funds Administrator does not guarantee to the vendor that they will be paid appropriately.  A bond would, if one had been written.

*The nature of purchase orders is different from construction contracts. When issuing a P&P bond on a contract, the surety depends on the fact that the obligee / beneficiary is paying for the work, and that money may be the key to solving any claim or default.

When bonding a purchase order, the obligee / beneficiary (vendor), is not paying – they are receiving payment. That is why a Financial Guarantee Bond must be used, and is why they are harder to obtain.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

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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

Alpacas vs. Llamas

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Look at that face!  Don’t you love it? That sure is a cute Alpaca! Uh…or is it a Llama?  Hard to tell,  but  it’s  OK.  You still love it.

For Surety Bond Producers, it can be hard to tell the difference between a performance bond and a site bond.  In this case, it does matter because the apps and markets you use for performance bonds may not get you the site bond your client requires. You need to know the difference!

Info #1.  You have at least one market that is a strong, stable player on Site and Subdivision Bonds.  FIA Surety is your go to market.  We have been writing these confidently since 1979.

Info #2. FIA offers a free, accredited CE course on Site and Subdivision Bonds.  In fact we have nine accredited courses you can attend and learn “everything” about surety bonds!  Click for info and to register.

Info #3. That’s an Alpaca!  Smaller than a Llama: 150 lbs vs. 400 lbs. llamas also have longer faces and banana sized ears.  (Trick to remember: The “ll’s” in Llama look like the long ears.)

Steve Golia, AVP of Underwriting
FIA Surety is First Indemnity of America Ins. Co.: A carrier providing A rated, T-listed bonds in all states!
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417
Visit us: www.fiagroup.com

Alpaca <–> Llama

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)

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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

181. How to Get Rid of Surety Bonds and Why You Should

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“How can I miss you if you don’t go away?”

Performance Bonds are issued by insurance companies – but they are not insurance policies.  When you get to the end of your auto insurance, it will expire if not renewed.  Plus, the company can cancel it in the middle of the year.  Boom, it’s done!  Insurance policies are not “forever.” Click for mood music!

With surety bonds it’s different.  First off, they’re harder to get.  Then, when you finally have it, they don’t expire! And the bonding company can’t cancel a performance bond. So how do they end?

The fact is, people focus on getting surety bonds because they are a mandatory element of many transactions, but they think little of getting rid of the bond – eventually.  Let’s go over why you want to close out a performance bond, and how to do it.

Every performance bond is married to a written contract that is identified in the first part of the bond.  They are married until death – until the contract is completed. If you have a two year contract covered by a Performance and Payment Bond, you have a two year bond, unless the contract is extended. If the contract is amended to a term of 25 months, the bond automatically follows.  If the contract dollar amount is increased, the bond automatically follows.  The point of the bond is to guarantee the Obligee’s (the beneficiary of the bond) satisfaction with the performance of the contract.  So the bond remains in force until the obligee / contract owner accepts the completed contract.

To close out the surety’s obligation, a release or acceptance of the contract by the obligee is needed.  The applicant / principal (contractor) can’t cancel or close the bond.  Only the obligee can end it.

Closing evidence can consist of a Status Inquiry form completed by the obligee.  The questions would be:

If the project IS completed:

Completion date: ___________  Acceptance date: _____________ Final contract amount: $___________

If the project IS NOT completed:

Approximate percentage or dollar amount completed: $_____________________________

Describe any disputes or performance issues on the project: _______________________________

Do you know of any unpaid bills for labor or materials? ____ No ____ Yes  If Yes, please describe: _____________________

Current estimated completion date: ____________________________________

Now that we know how to close out a performance bond, why bother to do it?  There are some very good reasons…

The Surety

  • The surety (bonding company) will conclude the liability on their books when the bond is released.
  • They also immediately earn all the remaining premium. Two good reasons!

The Contractor / Principal

  • That portion of the company’s bonding capacity will be restored to support a new contract.  This helps them qualify for more projects and larger ones. That is the source of their company revenues.
  • The “acceptance” of the work, by the obligee, is the official conclusion of the contract.  It ends the principal’s obligation – except for a “tail” such as a maintenance obligation.
  • When completed, the project is added to the company’s credentials.  They can now list the contract as a successfully completed job.  That’s how their resume is built.
  • The applicant company, it’s owners and spouses have a legal liability that arises through the indemnity agreement (a hold harmless issued to protect the surety.)  It is literally a liability which must be disclosed on their financial statements.  When the bonds are released, this company and personal liability ends.

The Bonding Agent

  • The agent wins too because more bonds can be issued.  And that’s how they make their living.

Conclusion

Everybody wins when the job is closed out and the bond gets released. This is a necessary process that should not be ignored.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia: 856-304-7348

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