The Process takes time and depends on the complexity of your company or group of companies. A Contractor should never bid on a job assuming he will be able to get a bond facility if he is successful.

• Financial statements for the operating company and all related companies for the past 3 years with aged listing of receivables and payables.
• In-house interim statement for a recent month end with an aged listing of accounts receivable and payable.
• An organizational chart of key employees and their responsibilities and resumes
• A Contractor’s Questionnaire Download Here
• A Copy of the terms and conditions letter from your bank.
• Letters of recommendation or references
• A continuity plan and key man life insurance.
• Company brochures or websites if available
• A personal financial statement for all shareholders. Download Here
• Work on Hand Schedule for your most recent year end and for the inhouse month-end statement provided Download Here

After meeting with the contractor and gaining an understanding of the firms business and needs, the broker tailors the submission for the specific requirements of the surety company. The broker then submits the account to a surety company best matched to the contractors profile and needs. It is important to recognize that all surety companies are not the same. For example, some specialize in large contractors, some in middle markets, and others in emerging contractors. The broker is an essential link between the contractor and the surety company and should maintain communications with both. Once the surety bond broker collects all the necessary information, he or she submits it to a surety company underwriter. The underwriter takes an in-depth look at the entire operation.

Who are the Surety Companies?

• Most are subsidiaries or divisions of insurance companies
• Number of surety companies is very small
• Problem with unlicensed sureties.

What the Surety Company is Looking For:

• Good references and reputation
• The ability to meet current and future obligations
• The experience matching the contract requirements
• The necessary equipment to do the work or the ability to obtain it
• The financial strength to support the desired work program
• An excellent credit history
• An established bank relationship and line of credit.

The Underwriting Process

Surety company underwriters evaluate risks in ways similar to banks evaluating loan lapplications. Underwriters consider business and personal financial statements, credit reports, credit references and other factors. Each Surety company has own underwriting criteria but basic factors are:

Capacity

• Proven track record of performing work of a similar size, scope and location to that proposed for bonding.
• The surety will look at the contractor's performance and ability to meet obligations on past, current and future workloads (bonded and non-bonded).
• Goals for business growth and an explanation of how those goals will be funded. This should include details about the type, size and location of jobs that will be sought and aggregate levels of work.
• The surety may request 12-month and 24-month comprehensive business plans.
• A statement affirming that the contractor has, or can obtain, necessary equipment.
• Organization chart and resumes of key employees. Project management and leadership structure, with responsibilities carefully detailed.
• Perpetuation and continuity plan

Capital

• Independently certified audited financial statements (past three to five years) with accountant's opinion page.
• Information about cost-control mechanisms.
• Job estimating procedures
• A work-on-hand report for bonded and non-bonded work, showing the financial performance of each contract. The surety may look at internal controls for job-cost analysis and require bimonthly or quarterly job status reports to obtain a clear picture of how the company achieves its goals. The job status reports should reflect all jobs, bonded and non-bonded, and provide consistent and conservative evaluations.
• Information about bank and credit relationships.
• Personal indemnification
• Cross-corporate indemnification.

Character

• Relationships with subcontractors
• Relationships with suppliers
• References from project owners
• References from lenders
• The underwriter may request a meeting with the contractor to form his or her opinion and obtain additional information.
• The contractor’s financial situation fluctuates from day to day, from job to job, and consequently is the area that is subject to the greatest scrutiny. When applying for bonds, the contractor must be aware that once the surety is satisfied as to the technical ability to perform, it will then review the financial results of performance and translate that into a decision on the firm’s present and future ability to pay bills, finance additional undertakings, and accept or mitigate risk.

The Decision

• No guarantee process will result in approval
• Approved only if the surety is confident the contractor is qualified to perform the work program successfully and has the financial capacity to withstand the numerous risks involved in the construction business.
• The decision to seek surety bonds should be based on long-term considerations
• To obtain bonds, some changes in the way a contracting firm does business may be necessary and these changes could have associated costs and benefits
• If the Surety feels your company is bondable; and your own thoughts as to the work program you feel able to accomplish matches their own, they will make an offer
• They will stipulate some guidelines as to the single job amount they feel comfortable with and an aggregate amount (total bonded program at any one time) but this each job is looked at on it’s own merits
• There will also be reporting requirements and conditions

Indemnity

• Contractor will be asked to sign an indemnity agreement prior to any bonds being released
• Indemnity agreement obligates the named indemnitors to protect the surety from any loss or expense
• If the principal is a closely held corporation or partnership, the individual owners and their spouses will be asked to personally indemnify the bond
• There are other important conditions included as well that the Principal should read and understand before committing to the bond process. We strongly recommend that you review this document with your lawyer so you fully understand the commitment you are making

Maintaining the Surety Relationship

• After the bond facility is in place, the surety continuously evaluates the overall performance and financial position of the contractor
• Adverse changes may cause the surety to reduce or terminate the bonding program, whereas positive results may serve as the basis for an increase in surety capacity
• To maintain and increase surety capacity, it is important for a contractor to develop and maintain an ongoing relationship. Developing a relationship requires commitment, trust, and above all communication
• A growing partnership requires teamwork and an organized effort among the contractor, the surety underwriter, and the surety broker
• There may be difficult times, and the surety may not always be willing to extend the level of surety the contractor would like, but maintaining a relationship with the surety company builds trust and increases the surety’s commitment to the contractor over time