If you’ve been involved in a large construction project, you are familiar with surety bonds and all of the underwriter’s questions you need to answer. If you’re new to the game, it can be daunting.
Many small contractors pass on bidding for projects if they require a surety bond. But it doesn’t have to be that way as long as you are prepared and know what kind of questions the surety insurer’s underwriter will be asking.
Surety bonds protect project owners from loss if the contractor’s work is defective or of poor quality, or if the contractor fails to complete the work or follow the terms and conditions in the agreement.
For example, if the contractor fails to finish a project due to a shortage of workers or financial problems, the surety company has to step in and perform in the contractor’s place. Obviously, it’s in the carrier’s best interest to insure projects where they won’t be asked to perform. As a result, the questioning can feel like an inquisition, but it’s worth it to be prepared so that the insurer underwrites the bond and you can get to work.
Other areas of scrutiny
Besides the questions in the box, the insurer will also likely want to know:
- If the start and completion dates in the contract are feasible.
- The amount of the bid bond if there is one.
- Any warranty terms and if they are sensible.
- The payment terms and if they will allow the owner to manage expenses during the life of the project.
- If there is any retainage, or the withholding of the final contract payment for a specific time period to ensure that the job has been properly completed.
- If there are any damages that are set out in the contract in case of non-performance or shoddy workmanship.
- If the contractor’s costs to complete other projects it is working on are sufficient to ensure that it can cover its general and administrative costs in the following year.
The above list is not exhaustive and some surety insurers may have different areas of interest.
The bottom line is you’ll want to make sure your finances are up to snuff and that you have a strong track record.