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How Does Safety Impact Surety Bonding?

Safety

While many factors impact surety bonding, some are more obvious than others. Surety companies continually monitor a contractor’s financial strength, capacity to execute their projects and the quality of their management team

A financial snapshot at a particular time may give a good indication of a contractor’s current operations, but a surety also will evaluate factors—including a contractor’s safety record—that indicate a commitment to long-term success. Prior success is not a guarantee that all future projects will be executed profitably.

A quality contractor will have a realistic long-range plan for where it wants to be in three to five years and how it is going to get there in the current business environment. In addition to a long-range plan, the contractor needs to possess strong leadership to implement the plan. A contractor with exceptional leadership should be able to attract and retain qualified personnel to be successful for the long term.

As a surety monitors what the contractor plans to do and what it actually accomplished, it is important for the surety to look beyond just the current financial results. Favorable results in the short term could be at the expense of developing and achieving long-term profitable growth. A contractor’s commitment to training and safety is an indicator of the quality and commitment of the current leadership.

HOW DOES SAFETY IMPACT SURETY BONDING?

The competitive nature of the construction industry—along with hard bids, changing materials prices, labor demands and evolving start/finish dates—leaves little room for error. Any errors in bidding the contract, buying out the contract, and executing the contract can put a strain on short-term profits and expenses related to long-term commitments. The contractor must dedicate resources to training and safety. When managers fail to make a commitment to training and safety, it could have a negative impact on the contractor’s ability to obtain surety bonding.

Financial results will be negatively impacted by the increase in insurance costs if a surge in the frequency and severity of worker injuries occurs due to improper safety controls. A contractor’s inability to control costs, such as insurance, could make the difference in having the low bid on some projects. The hard-bid nature of most construction projects requires a contractor to control its expenses in order to be the successful low bidder. In addition, more obligees are looking at a contractor’s safety record to determine which contractors are “qualified” to bid their work.

SUPERVISION AND COMMITMENT

After successfully acquiring the work, a contractor must complete the project with the proper supervision of manpower. Attracting qualified workers is one of the biggest issues facing contractors today. A contractor that does not have a strong commitment to training and safety is less likely to attract and retain the qualified workers necessary to complete the projects on time and within budget. The emphasis on safety starts at the top with management and needs to be a priority for everyone in the company.

Safety incidents or injuries should never be one of the reasons that contractors are unable to finish a project on time. A contractor that cannot obtain substantial completion for a project in accordance with the contract documents could incur additions costs and face delayed start times on other projects.

When safety issues become a factor in a contractor’s ability to finish a project, the surety starts to question what other issues might be out there that could have a negative impact on the contractor’s ability to complete the project.

If safety and training are not a priority, could there be other areas where management is lax? What about the contractor’s ability to maintain equipment, select and supervise qualified subcontractors, and maintain systems to capture and bill costs associated with each project? These are all issues that could be revealed if a contractor does not have a long-term commitment to safety.

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