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Contract Surety Bonds

Bid season has arrived in Alaska, and we’ve already seen an uptick in bid, performance and payment bond requests from our clients, and that will only increase in the coming days and weeks as more and more opportunities are put out on the street.  Business Insurance Associates currently handles the contract surety bond programs for a number of contracting firms, ranging from those pursuing work on a small scale (under $ 500K), those in the mid-market range ($ 1M – $ 10M), and those in larger programs ($ 25M+).  And while they share the common pursuit of government and private commercial contracts, the dynamics of those contracting firms differ greatly.

Why you Need Surety Bond

If you are bidding public government work or private commercial work, you are likely at some point in time to run into contract surety requirements.  Each project owner has their own procurement policies that dictate the terms and conditions when bonding is required, it’s important to completely understand those requirements prior to pursuing or bidding this type of work.  In some cases, project owners may require bonds on projects in excess of $ 100,000 (see the Miller Act of 1935), in other cases like Alaska Housing Finance Corporation or Cook Inlet Housing Authority bids, they may require performance and payment bonds on any size project.  Furthermore, if you are working as a subcontractor on these type of contracts, you could run into the general contractor requiring you bond back your subcontract, particularly if they haven’t worked with you before, if you scope of work represents a sizeable value or percentage of the overall contract, or if you are providing a key component of the overall project.  Regardless, many contractors run into bonding requirements and are forced into a crash course on surety.  A much better option is to apply to prequalify for a bond line, it won’t cost you anything to just carry the line and it will be available should you need it.

For more information on setting up a bond line, contact our office at (907) 274-4142.

Small Credit Based Surety Markets

With decent credit, property ownership and a little bit of experience, most contractors can qualify for a contract surety bond line up to $ 400,000 or $ 500,000.  Business Insurance Associates works with ten different contract surety markets and most of those have a version of the small credit based surety programs.  The purpose is to secure bonding for new contractors, or contractors who focus on bidding work at $ 500,000 or under, and to offer a surety line without getting into some of the extensive underwriting that goes into a larger surety program.  Rates in these programs typically run 2.5 percent to 3.0 percent, but in some cases we have specialized programs that might provide surety capacity at a 1.5 percent rate.

Mid Market Surety Accounts

While the smaller credit based surety programs are streamlined to require minimal maintenance and they serve a valuable role in getting new or emerging contractors bonded, the reality is anyone pursuing work in the commercial or government sector is going to bump up against that $ 400,000 or $ 500,000 limit before too long.  It might take a season or two and succesfully bonding a couple smaller projects through completion, but eventually you’ll be doing the take-off and come to realize after materials and subcontractor pricing comes in that you are over your limit through a smaller credit based market.

Fear not, we have contract surety relationships and a proven track record of assisting contractors with building their contract surety programs beyond the credit based programs, and navigating the additional underwriting that goes into larger programs.  We have twenty three years of experience working with accountants and we understand construction accounting, it’s a unique methedology that requires the oversight of professionals (ie. CPA’s, Insurance Broker, Surety Broker, Banker, Attorney, etc) to navigate the financial waters of running a succesful and profitable construction company.

Creative Solutions

In addition to our preferred and standard surety markets, we have access to markets that utilize a diverse range of tools to extend surety capacity.  We are appointed to write contract surety bonds through the SBA program, we have markets that will consider collateral (either real property or irrevocable letters of credit), markets that will do funds control, and markets that will consider outside indemnification (ie. co-signers).  We always look to place qualified surety programs into preferred markets, but in the event we need them we have a host of tools at our disposal to accomplish the objectives.

Resources 

The Plans Room – Monitor Alaska projects advertising for bid, bid results and more.

Federal Biz Opps – Monitor nation wide bid opportunities

Surety Information Office – information on surety bonds

Summary

Be sure to contact our office for more information, if you have any questions, or want to look at getting prequalified for a contract surety bond program.

 

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