How Contractors Can Win the Trust of Surety Agencies
This past year has not been easy for a lot of business owners which is why Bonding Solutions works hard to support each client and provide high-quality bond services in hopes to help you grow your business. Considering we provide contractors with the bonds necessary to keep their business running and growing, it’s in our greatest interest to see clients succeed with each of their projects. Over the years we have developed relationships with so many different contractors that we thought it may be beneficial to help new or up-and-coming contractors learn how they can win the trust of surety agencies. Having a great working relationship with a surety agency can help you get the bonds you need faster as we learn your business and understand which bonds are required for your specific business.
If you look closely, you’ll see that behind every successful contractor stands a reliable surety agency. Surety bonds are mandatory in the construction industry. They protect owners and investors from financial losses and ensure truthful and adequate work performance. Thus, sureties are not eager to release surety bonds for every constructor out there. They need to believe a business won’t fail. In 2021, we know that growing your construction business is going to be competitive and if you fell on hard time last year, get approved for bonds may be that much harder.
According to the AIA Consensus Construction Forecast Panel, this year brings a decline in the industry, which means contractors will have to work that much harder to win bids on projects and get the support of surety agencies. That being said, a lot can be achieved through careful planning and sound strategies. Bonding Solutions is here to help you every step of the way!
Basics of Construction Bonds
Most states require contractors to obtain a construction bond to win the project and start work. This is a type of surety bond that guarantees legal and ethical work performance. It is meant to protect the owner and the public from financial losses and other fraudulent behavior. Basically, construction bonds guarantee the contract will be completed according to all the standards specified in the agreement. It also ensures materials and workers will be paid and construction work performed in the right and timely manner.
Construction bonds work like any other surety bond. Three parties are involved in the agreement: the obligee, the principal, and the surety. The obligee (the project owner) requires the bond from the principal (construction company) to ensure compliance with the agreement. The surety (surety agency) is there to cover the expenses of bond claims if the principal fails to follow the contract.
Depending on the project and general situation, contractors might be asked to obtain different construction bonds and insurance policies. You can read about the most common types of construction bonds here.
Understanding Surety Agencies
Surety agencies won’t always approve surety bonds. Sadly, sureties often reject construction companies mainly because they unsure of a particular company’s success. Maybe it is a new construction company that doesn’t have the bandwidth to support new projects, maybe there are past claims against this company, or maybe the company does not have the credit or financial withstanding to get approved for a construction bond. The reasons for bond denial are endless, but working with a trusted surety agency can help you get approved even in the hardest of situations. Surety agencies use various parameters to determine the future of the construction company and its financial stability. Based on their findings and associated risks, surety companies will decline or approve the bond for contractors.
Steps to Take to Win the Trust of Surety Agencies
Now that you have a basic idea of what is important for surety agencies, let’s talk about practical steps you can make to win their trust. We can’t claim to have all the answers you need, but some of these easy-to-take actions will definitely make you more reliable in the eyes of sureties.
Showing Strong Leadership Skills
One of the first things a surety company will check is the capacity of the leadership team. Contractors should have a strong sense of planning and implementation. The qualified management knows which projects should be pursued over the next two years and has a general strategy to achieve the plan. Strong leadership is all about consistency, careful planning, and management, so naturally, that’s one thing that interests sureties the most.
Speaking of plans, the surety agency you are working with will also check previous projects and business plans. Regular tracking of the contractor’s progress in monthly and annual goals over the past two years gives way how successful the business is. If the company has a long history of winning bids and completing projects without facing claims, a surety agency is likely to have more trust in it.
Having Quality Workforce
We shouldn’t forget that sureties monitor closely the strength and quality of the construction company’s workforce. Employees make up a crucial factor that keeps the business running and allows contractors to finish their projects. Employers need qualified and experienced staff to operate electronics and equipment and perform a variety of other duties necessary to complete the project on time.
Without the proper workforce, it’s hard to be successful in the long term, and surety agencies know that. They’ll look into the company’s labor pool to estimate its effectiveness and closely monitor the hiring trend within a company. Sureties like to know that a contractor hires only educated staff because that ensures successful project realization.
Revealing a Good Business Plan
We already mentioned how important it is to have strong leadership and a solid business plan. However, some additional details in that plan will also grab the interest of the surety agency. A good business plan that runs deep in details for ultimate success is hard to build. Your company will have to focus on many things all at once, and yes, a surety agency can check each one of them. A good business plan should include:
To develop a successful business plan, you need to use all your construction experience. The past performance of a contractor is everything. The surety company can decline your bond over one bad bid in the past and change your entire future. For that reason, it’s essential to stick with the things you know and make decisions based on previous experience. If you have only successfully managed jobs of $1 million or less, shooting for the ones of $10 million may be out of your area of expertise at the moment. Stay within your capacities and show sureties you can make truthful estimates. Slow growth is okay. It is important to only take on projects that you are confident in and not stretch yourself too thin too quickly.
Another thing you could do is to show off your work to the surety — Getting the first-hand experience on the job site will change the way the surety agent sees your company. In the place of all action, you can share your company’s successes and explain everything about previous jobs and future projects. You can also provide bills, cost and risk estimations, and other documentation that showcases the company’s financial situation. A surety agent will get a lot of useful information from a little tour throughout the company and make a full picture of your business.
The first and most essential thing sureties will check is the contractor’s financial statement. Even before agents meet with the contractor, they’ll look into the company’s past debts and credit score. They’ll also review the accounting system and staff to get accurate and detailed financial information.
Sureties want to know that the company can repay any claims made against the bond, so they’ll look into all your past, current, and future debts. You’ll be asked to provide information about expected expenses for planned bids, too. If you provide satisfying info and show yourself capable of running the business without relying too much on the bank’s money, a surety agency is likely to give you all the support you need.
Along with making financial estimates for future investments, you should also take care of the job’s specifics. When the business starts to grow, you can expect to receive and take on more contracts. Still, you should stay cautious and think things through before taking on large amounts of work. Review every contract and project and pick only the ones suitable for your business. Surety agents will think highly of you when they see how dedicated and responsible you are.
Without a doubt, surety agencies look positively to business growth, but they’ll look closely when new bids are ahead. A growing business can easily exceed the bond and insurance policies, which is why we recommend maintaining an open relationship with your surety agent.
Keep your agent updated on all the changes in the business and reveal your plans for business growth. When you show that your company is planning everything ahead, from daily expenses to the impact of growth on bonds and insurance, your surety will favor your leadership skills.
Connect With the Right Surety
Now that we covered in detail how contractors can with the trust of surety agencies, we can talk about the importance of choosing the right surety company. Contractors should pick wisely because their business depends on the relationship with the future surety agency. Sureties should be well-versed in a particular industry and understand a construction company’s objectives to help it in the long term. Having the right team of surety agents is just as important as winning their trust for future work.
With over 60 years of experience, Bonding Solutions might be what you need for your business. We are a leader in the surety bond industry and provide exclusive, innovative tools and programs to support our clients. Along with construction bonds, we provide commercial, court, and many other types of bonds. Our highly educated team works with thousands of insurance agents and brokers nationwide to provide the best results for clients and achieve long-lasting relationships. If you need a construction bond and want to grow with us, give us a call or apply online for a free consultation!