How to Get Your First Bond, Part 2
This post is part of a series sponsored by Old Republic Surety.
This two-part article is addressed to construction contractors who are applying for their first standard bond. In the first part, Mueller explained the importance of an independent surety agent ― that is, you ― in the bonding process, and he outlined the financial documents a contractor will need to supply their surety company.
In this sequel, Mueller further explains the surety process and lists the ongoing documents a contractor will need to maintain for their surety. Share this article with your contractor clients. It’s full of good information for them ― and for you as you build your surety book of business.
In my first blog on this topic, we talked about the importance of a professional surety agent and how to find one, and the financial information you will need to prepare. Here’s more you’ll want to know:
To ensure timely approval, begin the submission process well before the date you need the bond. A good rule of thumb is to allow 30 days for the process to be completed; if you can start earlier, so much the better. Allowing at least 30 days provides the underwriter with adequate time to review the information provided, ask follow-up questions and conduct a meeting with you and your agent.
Once you’ve been approved for a bid bond, performance and payment bonds may be issued if you are awarded the project.
Sureties don’t just look at financials when they do their underwriting. They’re also interested in your experience and your company’s capacity to take on the bonded work. They may want to see the résumés of the top people in your company, including project managers and estimators. They’ll also look at the size of the project compared to previous work, your current backlog and whether you’ve completed other projects on time.
Finally, and certainly not least, the surety company may want to meet with you and your management team. Surety is a business based on trust, and underwriters place a lot of importance on character, one of the three C’s of surety underwriting (character, capital and capacity). Since character can’t be judged by a financial statement, your surety will want to get to know you and your company.
In Part 1, we learned that a knowledgeable CPA can be invaluable during this process. But not all CPAs are the same. Some specialize in manufacturers, others specialize in public entities, and some specialize in construction. We highly recommend a construction-focused CPA.
Construction CPAs understand the documents and financial statements that your surety will need. They are highly skilled in the method of accounting that contractors need to use and will produce statements that contain the schedules and notes that sureties and other construction creditors look for.
If you don’t have a construction CPA, ask for a referral from your agent or banker. Odds are they will know the best construction CPAs in your area.
After you’ve been approved for your bond, you’ll need to provide ongoing information to your surety. This may include:
In addition, most sureties will schedule an annual meeting after you’ve submitted your year-end financial statement. This meeting allows the underwriter to get feedback from you on how the year went and what the coming year has in store for you. Plus, it’s a chance for the underwriter to continue to develop a rapport with you. This can pay dividends down the road if you want to bid on a job that is particularly large or unusual.
Remember, establishing surety credit will go much smoother if you take the time to learn what’s required, work with a good agent and use a construction CPA to prepare your financials.
If you have any questions about anything regarding surety, reach out to an Old Republic Surety branch nearest you.
Read Part 1 of Mueller’s blog.