Surety Bonds 101 The Basics of Bonding. What is Surety Bonding? Surety ObligeePrincipal.
Surety Bonds 101 The Basics of Bonding. Surety Bonds Vs. Traditional Insurance Surety BondsInsurance...
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Surety Bonds 101 The Basics of Bonding
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Transcript of Surety Bonds 101 The Basics of Bonding. Surety Bonds Vs. Traditional Insurance Surety BondsInsurance...
Surety Bonds
101
Surety Bonds
101
The Basics of Bonding
Surety Bonds Vs. Traditional Insurance
Surety Bonds Insurance3-party 2-party
Risk transfer Risk transfer
Duty to obligee Duty to insured
Regulated by State Insurance Departments
Regulated by State Insurance Departments
Premium fee for prequalification services
Premium actuarially determined
Project specific Usually term specific
Penal sum Policy limits
What is Surety Bonding?
Surety
ObligeePrincipal
Types of Surety Bonds
• Bid Bond
• Performance Bond
• Payment Bond
Types of Surety Bonds
• Bid Bond
• Performance Bond
• Payment Bond
Types of Surety Bonds
• Bid Bond
• Performance Bond
• Payment Bond
CapacityFinancialStrength
CompanyHistory
OrganizationContinuation
Plans
References
Prequalification
WorkIn progress
Common Perceptions
Perception RealitySurety wants contractors capable of completing the project
Surety wants sound businesspersons who run construction companies
Surety wants contractor to fulfill contractual obligations
Surety wants contractor to generate income by fulfilling contractual obligations
No failures leads to increased surety capacity
Ability to grow business & generate revenue leads to increased surety capacity
Benefits of Bonds
FinancialSecurity
ConstructionAssurance
Why
Do
Contractors
Fail?
Why
Do
Contractors
Fail?
Factors Beyond Control
MaterialsShortages
SiteConditions
Inflation
LaborDifficulties
WeatherDelays
EconomicDownturn
Failure
RISK
HighMaterials
prices
Unreasonableowners
Onerouscontracts
Shortage of qualified,skilled workers
Contractor Failure Risks
Insufficient Capital
Slow collections
Low profit margins
RISK
MaterialsShortages
OverExpansion
NewOwner
Inclement Weather
Contractor Failure Risks
SubFailure
Change inScope of
Work
Inadequate Management
Contractor Failure
Accountingissues Management
issues
Personnelissues
Performanceissues
Unrealisticgrowth
Failure
Accounting Issues
• Inadequate cost tracking systems
• Estimating or procurement problems
• Underinsured
• Improper accounting practices
Tips for Contractors To Avoid Default
• Construction-oriented CPA
• Adjust overhead
• Bank credit
• Conserve capital
• Bond subcontractors
Contractors
Surety Bonds and Insurance Coverage for Small and Emerging Contractors
817-226-4311 – Local866-226-4311 – Toll Free
