Surety Bond Associates. Understanding Contract Surety Bonding: An Orientation for Veteran Owned Small Contractors
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1 Surety Bond Associates Understanding Contract Surety Bonding: An Orientation for Veteran Owned Small Contractors
2 Contract Surety Bonds Bid Bond Performance Bond Payment Bond
3 Who Requires Bonds? Public Sector Federal Government Miller Act of 1935 requires performance & payment bonds on contracts over $100,000 State and Local Government Little Miller Acts require performance & payment bonds on state & local public works projects (provisions vary by state)
4 Who Requires Bonds? Private Sector Private Owners For assurance that the project will be completed in accordance with the contract & to assure subcontractors & suppliers will be paid Lending Institutions To protect construction lending capital General Contractors To mitigate default due to subcontractor failure
5 Bonds vs. Insurance Obtaining bonds is more like obtaining bank credit than purchasing insurance. Contractors must qualify for surety bonds through surety s PREQUALIFICATION PROCESS
6 Principles of Contract Surety Three Party Agreement Surety Company Obligee (Owner) Principal (Contractor) Prequalification Contract Completion Payment to Subs/Suppliers
7 Prequalification Provides an in-depth look at the contractor s entire business operation Determines the contractor s ability to meet current & future contract & financial obligations
8 Prequalification The goal of prequalification is to provide assurance that the contractor: Runs a Well-Managed, Sound Enterprise Maintains Fair Business Practices Performs Obligations as Agreed
9 Prequalification Capacity to Perform Capital (Financial Strength) Character
10 Prequalification Capacity to Perform Track Record & History of Company Trade References Organizational Structure & Reporting Resumes of the Contractor & Key Personnel Tools & Equipment Business & Continuation Plans Analysis of Past, Current, & Future Projects Insurance Certificate
11 Prequalification Capital (Financial Strength) Detailed Financial Statements Contract Schedules Accounting/Cost Records Profitability Trends Cash Flow Projections Credit References Bank Line of Credit Personal & Corporate Assets
12 Prequalification Character Organizational and owner reputation for fair dealing with project owners, subcontractors, suppliers, lenders and other creditors, as well as general reputation within the industry.
13 Surety Underwriting Review Selecting Bond Agent Agents establish business relationship with the surety company Specialization in construction and bonding Aware of Local, Regional & National trends Knowledge of accounting and finance Knowledge of surety industry and construction risk management
14 Benefits of Surety Bonds Owners Provides owners a pool of qualified bidders Reduces the risk of liens and financial loss Increases the likelihood of timely project completion Protects against defective materials & workmanship
15 Contractors Benefits of Surety Bonds Increases the number of projects for which a contractor can qualify Ensures payment protection for subcontractors, suppliers, & laborers Technical, managerial, or financial assistance can be made available in certain circumstances
16 Surety Bonding Resources for Small Contractors Fast Track Bond Programs for Small Contractors with Good Credit US Small Business Administration s Surety Bond Guarantee Program Project Funds Disbursement Bonding Assistance Programs SuretyLearn.org
17 SBA Surety Bond Guarantees Provide up to 90% Guarantee to the Surety Business must be Independently Owned Must Qualify as a Small Business under Federal Regulations Contracts up to $5,000,000 Contractor in Good Standing / Cannot be Debarred Now Processed Online!
18 Project Funds Disbursement Used to Offset a Payment Claim Under a Bond Funds Administrator either a Third Party or Surety Company Subsidiary Establish Separate Project Account to Receive Project Payments and Pay Project Expenses Overhead & Profit Disbursement Monitor Lien Waivers Resource to Enhance Small Contractor s Ability to Obtain Surety Bonds
19 For More Information Contact: Ellen Neylan Surety Bond Associates 45 E City Ave, #493 Bala Cynwyd PA
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