by Mark D. Leskanic
For many, the experience of obtaining surety bonds in the past may have been a long and arduous process. This is unfortunate, as with the proper coaching and guidance a flexible and supportive relationship can now be established in a very short period of time and with minimal effort or consternation.
Surety bonds are a consistent component of all public construction projects as required by the Miller Act on federal government work and state-specific “little Miller Acts” on state and municipal work. This guarantee can often find its way onto private, commercial jobs as well based upon the owner’s or lender’s demands. Hence, by not having access to a surety program, a contractor may be passing up valuable opportunities and struggle to obtain the backlog they need to achieve growth and profitability.
Unlike purchasing insurance, a surety bond is a three-party guarantee which is underwritten on a credit basis more similar to a bank loan. Consistent with this statement, surety underwriters will request most of the same data as bankers, including past year-end and interim financial statements, tax returns, and other background details on the company.
In order to be best positioned to obtain the most fitting terms for support, the contractor will need to identify a professional bond agent who will act as a “coach” throughout this process. Carefully selecting this representative is an extremely important part of the equation, as your fate lies in their hands. Experience and reputation are paramount, and the contractor will want to make sure they feel comfortable with this individual, as sensitive company information will need to be shared with them. The agent will then be responsible for not only translating the contractor’s information into a format most readily understood by the underwriter, but also for their extensive knowledge of and access to the proper surety companies to satisfy the particular need. This is definitely not a “one-size-fits-all” industry, and in the end the agent with access to the most surety companies and having solid relationships with each will ultimately have an advantage in identifying a happy home for the placement of the bonding.
Conditions in the marketplace have recently “softened,” with underwriters becoming more aggressive with the support and terms they are willing to extend. This is the result of the industry being profitable for the last several years and has caused numerous new entries within the last 24 months. Many of the companies underwriting surety bonds are actually departments or divisions of much larger insurance carriers and, compared to recent insurance results, the surety results have been extremely strong. This being the case, upper management teams want their “piece of the profits,” and they mandate growth in this specific sector.
If you are a contractor who has not yet put in place a surety program or is “stuck” with terms and conditions which are not favorable, then now is a good time to consider establishing a new arrangement. With so many options to choose from in surety companies, now is an excellent opportunity to seek out the proper partner who will support you in achieving your business goals and objectives.
Mark D. Leskanic is vice president of Eastern States Insurance Agency, Inc.