ow to Obtain Surety Bonds Federal state and local governments require surety bonds in - PDF document

Surety Bonds taxpayer dollars. However, surety bonds are not limited toIn todayÕs competitive construction environment, a contractorÕs ability to obtain surety bonds has a significanteffect on that contractorÕs ability to acquire work. perform a contract in accordance with the departments. However, traditional insurance isSince the bond is underwritten with little a fee for prequalification services. to contact a professional agent or broker, alsoknown as a surety bond producer, whoin contract surety. A professional surety bond pro-tionship with a surety company, and assistsinmanaging the contractorÕs surety capacity.such as contract document review. The produceran understanding of the firmÕs business andneeds, the producer tailors the contractorÕs sub-surety company. The producer then submits thethe contractorÕs profile and needs. It is importantin emerging contractors. If necessary, the pro-pany. The producer is an essential link between Three Basic Types of Contract performance and payment bonds.performance bondcontractor fail to perform the contract in To find a producer who specializes in contract3700 or www.nasbp.org. NASBP membersnecessary information, he or she submits it to asurety company underwriter. The underwritertakes an in-depth look at the contractorÕs entireThe underwriter may request a meeting withunderwriter may want more information on theprojects, bonded or not, in the contractorÕs project, the underwriter will want to knowAlthough it may seem as if surety underwritersfocus on the contractorÕs finances and financialments of the contractorÕs business. The contrac-torÕs organization, track record, and approach totioned with frequency if the contractorÕs results integrity in the construction industry;contractorÕs success;relationships with surety underwriters;construction industry; industry associations. years and may require a financial statementaudited by a certified public accountant (CPA).AccountantÕs opinion pageaccording to audit, review, or compilationcial condition of the company.business performed. The surety analyzes eachperformance of each contract and provideExplanatory footnotesÑconveys the CPAÕs find-ings, observations, and recommendationsabout the contractorÕs business. Not all CPAsAccountantsÕ (AICPA) recommends the percentage-of-preferred by most sureties. The percentage-of-completion method best represents a contractorÕsresults of work performed during the accountingperiod. The percentage of contract values recog-cost percentage-of-completion method.an interim financial statement every three or perform its contractual obligations under thestruction companyÕs owners through personaland/or corporate indemnity.contractorÕs failure to fulfill its bonded obligationcial resources to resolve any difficulties that mayarise in the performance of the bonded work.responsible to fulfill the contractÕs obligationsand the suretyÕs obligations are secondary to thecontractorÕs. Surety bond premiums are servicefees for the suretyÕs expertise, underwriting services, and financial backing. uously evaluates the overall performance andfinancial position of the contractor. Adverseresults may serve as the basis for an increase insurety capacity. Surety bond premiums vary from one suretyto another, but can range from one-half of onepercent to two percent of the contract amount,project and the contractor. Typically, there is noperformance bonds incorporate payment bondsdocuments, it is the contractorÕs responsibility change in contract price. Payment and perform- The surety industry is an integral part of thea contractorÕs greatest assets. The producerand underwriter are professionals who possessor have access to a wide variety of resources tostruction industry and can assist the contractorexperience on issues facing a contractor.ÑThis service becomesvery important if a contractor is involved in pri-source of funding on private projects. Thesurety will insist on knowing the source andÑMany sureties performcontractorÕs family, estate, partners, creditors, © 2007 Surety Information Office