Surety Bond Considerations All Contractors Must Consider
With Alabama’s economy and business confidence both growing at an impressive clip, it’s important for construction business owners to understand how this can affect your surety bond program or how to get one started. ABC has recently rolled out an exclusive program in partnership with Cincinnati Insurance Company which responds to the contractor’s need for bond capacity. Having an inside perspective on these factors could help you support continued growth rather than be left behind in this current building climate. Alabama Construction News got the opportunity to sit down with Charlie Carper and Drew Gunn, surety bond agents from Thompson Insurance, along with David Kinney of Cincinnati Insurance. We discussed what construction company owners need to consider, when trying to grow their business through the use of a surety bonding relationship. And, David Kinney of Cincinnati Insurance, weighes in to elaborate on the type of value Cincinnati can bring to a contractor’s surety program, whether it is just getting started or more established, but growing.
Q: With the current construction climate, what kind of strains are you seeing some contractors under?
Charlie Carper: “We are seeing many contractors struggling with their bond capacity. These contractors fall into two different categories. The first category we see are companies that are newer to the marketplace. These consist of contractors who have decided to start and run their own business in the past couple of years or those who have recently realized the need for bonds on their work. Often, when starting out, your financials can have a tendency to be somewhat ‘light’. Some bonding companies have problems bonding start-ups because of this.
The next type of contractors are established, but growing contractors who may be out pacing the capacity offered by their current bonding company. This is a problem in a competitive marketplace because, as a contractor, you may need to bid on and win more work or larger projects. But, your current bonding company may be pushing back and reluctant to expand your current work program. Fortunately, there are now solutions available which can fit the needs of both of these types contractors.
Q: For the newer contractors who may be looking to develop a surety relationship, where should they start?
Drew Gunn: “ I would start with seeking out an agent that specializes in surety bonds. The relationship between a contractor and bond agent should be a lot like the one you have with your CPA, attorney or banker. These professionals need to understand fully the goals and direction of your business to help you plan for the future and so does your bond agent.
Next, make sure to gather adequate underwriting information. This would include current financials, resumes for owners and key employees, current work-in-progress and whatever else your bond agent may need to help best serve you. Your financials, credit and other information is used to inform both your bond agent and by the bonding company to help determine what type of bond program is available to your company. Some bond companies do offer credit based bonds for smaller or infrequent bond needs. Aside from requiring less underwriting information credit-based programs can be valuable tool for contractors who are just starting out, or one’s that may need bonds less frequently. Additionally, starting here can allow you to step-up your bond program as your capacity grows and your company’s financials show greater strength.
Lastly, ask your bond agent about the bonding companies he or she represents and have them explain to you the benefits of each. It is important to begin a relationship with a bonding company that has the necessary financial strength and also understands your specific type of business. Beginning a relationship with a knowledgeable agent who can help guide you properly and a strong bonding company are the cornerstones of a strong bonding relationship.”
Q: For the established contractor, what are some strategies they could use if they are out-growing their current surety relationship?
Charlie Carper: “When you start to see that your current bond company is reluctant to grow with you or perhaps you have even outgrown their capacity I would recommend that , it is a good idea to look at the surety bond marketplace for other bonding companies, that may be a better fit. However, your bond agent should be selective on which bonding companies to approach. You would only want to work with bonding companies that have the level of capacity you need and, importantly, have a good understanding of your business. Another possible strategy would be to have a back-up bond company standing by. Since a move from one bonding company to another can be a lengthy and time consuming process, it’s important to keep your back-up bonding company as up-to-date with your file as your current company would be. “
Q: Whether your a start up construction company looking for a smaller surety program or an established construction firm, how can The Cincinnati Insurance Company provide value to these firms?
David Kinney:“We value long-term relationships with our contractors whether you’re a firm with sales of $5 million or a firm with sales of $200 million, regardless of the size or range of your operation, Cincinnati has a bond option for you whether you have been in business for one year or 50 years. For contractors with work-on-hand of $100 million and above, we can provide surety bonds along with providing two streamlined processing options to help you get on the job quickly. Contractors who may have the occasional minimal bond need and or do not have CPA prepared financial statements, our CinciExpress program can provide you with bid/performance and payment bonds up to $500,000 (with a capacity up to $750,000 for bonded work-on-hand). Lastly, for those contractors who may provide a CPA financial statement on a compilation basis only, our SuretyBridge program can provide bid/performance and payment bonds up to $2 million for a single or aggregated bonded liability. Regardless of the program, you will be receiving the backing of an A+ (Superior Financial Rating) rated Surety Carrier as determined by A.M. Best Co, an independent ratings company.