By Charles E. Carper, IV, Surety Bond Agent
For those who aren’t familiar, a contract surety bond is a tool that, if used correctly, contractors can use to really grow their business. When a contractor is able to bond their work it opens them up to being able to bid-on and win a wider range of very lucrative work. We hope that this article can act as a guide for contractors who are interested in setting up a bond program, to dispel any misconceptions and help shed some light on the process as a whole.
To put it plainly, surety bonds guarantee that the contractor will do what he is obligated to do under a contract. The most common types of bonds that a contractor will need are:
- A BID BOND. This bond guarantees that the contractor who is awarded a bid will enter into the contract.
- A PERFORMANCE BOND. This bond guarantees that the contractor will perform the terms of the contract, whatever they may be.
- A PAYMENT BOND guarantees that the contractor will pay all of his labor, subcontractors, and vendors during the course of performing the contract
Note: To avoid confusion when we refer to “The Surety” or “Bonding Company” we mean the carrier or insurance company that underwrites the bond. When we say “Agent” or “Surety Bond Agent” we mean us. The Agent facilitates the relationship between “you” (the client) and The Surety.
Construction Bonds: 3 Steps to Establishing a Surety Bond Program
Single, one-off bonds are available. However, for most contractors, establishing a bond program makes the most sense. This allows the contractor to pursue work with the knowledge that he has a bond relationship with a bond company.
Establishing a bond program can be a time-consuming process. Much like establishing a line of credit with a bank, quite a bit of information has to be pulled together. It is very important to do it the right way from the start. It may seem daunting, but here’s a simplified step-by-step look at how to go about it and what you can expect.
Step 1: Find a knowledgeable Surety Bond Agent.
The first step for a contractor wishing to establish a bond program is to find a knowledgeable, experienced and reputable bond agent who has relationships with various bonding companies. It’s great to find an agent that has a proven track record and specializes in surety bonds, since it is a very specialized discipline.
Just as banks are different, bonding companies are different also. Finding the right bonding company isn’t a one-stop-shop. There are bonding companies who are comfortable with small contractors, and others who just aren’t set up to handle smaller contractors. Some companies are comfortable with general contractors while others prefer to work with subcontractors. Some companies like heavy equipment contractors while other companies don’t understand them. That’s why it’s important for your bond agent to have a relationship with multiple companies.
Step 2: Give your Agent the tools he needs to do his job.
Just like you can’t build a building without the necessary tools, your agent can’t build your bond program without the proper tools. He will need to see a range of documents, including copies of financial statements, work in progress, balance sheets and other financial documents. These can help us articulate to the Surety your current financial position and stability.
You also need to share with your agent how your business model works, how you operate and what your expectations are, what type of work you’ve done in the past that qualifies you to take on the project on which you wish to bid. Your agent must understand both where you are and where you want to be in order to get you what you need and match you up with the bonding company that’s right for you.
Step 3: Ensure your Agent maintains your surety bond program.
Once your agent has your program in place, they must maintain that program going forward. Keeping the file current can help insure that the Surety can respond to bond requests in a timely fashion, on the next job you’d like to bid and so on.
Keeping that file up-to-date can ensure not only the responsiveness of the Surety in evaluating your requests but also help us, as agents, do the best possible job we can, for you.
Why You Should Choose a Professional Bond Agent
When you go to an agent for a surety bond, you want somebody who understands the business. I’ve been doing this since 1982 so I can bring a lot of experience to the table. I know there are agents out there known to over promise and under deliver. “Oh yeah, you want to million-dollar bond? No problem!” Then you move heaven and earth getting financial statements, only to have your agent call you back to tell you they can’t get it done.
Here at Thompson Insurance, we represent 18 different bonding companies, and it’s my job to match up my bonding companies with my customers’ needs. It’s my job to mold my clients’ expectations of what the bonding company is going to want before I even approach them.
If I’m doing my job right, I have a thorough understanding of you, the contractor, which allows me to marry you with the appropriate bonding company. This process is very time-consuming and complex, and you really don’t want to do this every time you need a bond.
In order to do what’s right for my customer and the bonding company, I try to find a marriage that can withstand the test of time.
Contact Thompson Insurance in Birmingham and Montgomery, AL, for More Information Regarding Your Surety Bond Program
Are you ready to be a customer of Thompson Insurance with locations in Birmingham and Montgomery, AL? Contact one of our Thompson Insurance Agents today to learn how our services can best fit your individual needs. Give us a call today at 334-277-8970.
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