| Surety Bonding: Expand Your Ability to Acquire Work |
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| Written by Marla McIntyre | |
| Monday, 09 July 2007 | |
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Page 1 of 2 Construction Business Owner, July 2007 Almost half of today's non-residential (single-family) construction takes place in the public sector where contract surety bonds are required by law as a way to protect taxpayer dollars. In addition, more and more private project owners or their lenders are stipulating bonding requirements on their construction projects. Prime contractors are also more frequently requiring subcontractors to obtain bonds. In today's competitive marketplace, where, according to the U.S. Census Bureau, the value of construction put in place excluding single-family residential construction is about $600 billion-about $275 billion of which is public-a contractor's ability to acquire work is becoming more and more limited if he or she has not arranged access to surety bonds. The Miller Act Contract surety was federally codified in the Heard Act of 1894, which was replaced by the Miller Act in 1935. States followed suit in a series of state acts commonly referred to as Little Miller Acts. The Miller Act and other related rules and regulations were designed to protect taxpayers' money on public contracts. "In addition, these acts were designed to protect the financial well-being of the hard working people who provide labor and materials to public projects," explains Gary T Dunbar, bond division president, Great American Insurance Co., Cincinnati, OH, and past chair of The Surety & Fidelity Association of America (SFAA) board. Surety bonds are just as essential in private construction. The ability to obtain a surety bond is independent validation of the contractor's capabilities and is viewed favorably by banks as lending partners and private owners as potential customers. Surety bonds provide contractors with a clear, distinctive advantage over unqualified competitors, and the ability to provide bonds sends a message of credibility and trust to the project owner. Having a surety bond tells the owner that an independent third party believes in the contractor's ability to perform the job. Obtaining a Bond Most surety companies issue surety bonds through professional surety bond producers. The first step in obtaining a surety bond is to contact a producer, also known as an agent or broker. A list of producers is available through the website of the National Association of Surety Bond Producers (NASBP) at www.nasbp.org/bond.cfm. The producer guides the contractor through bonding, helps establish and foster a relationship with a surety company and assists in managing the contractor's surety capacity. After meeting with the contractor and gaining an understanding of the firm's business and needs, the producer customizes the contractor's submission for the specific requirements of the surety. The producer then submits the account to a surety company best matched to the contractor's profile and needs. The surety underwriter examines the contractor's entire business operations and must be satisfied that the contractor is capable of completing the project. This process, known as pre-qualification, assesses the contractor's financial strength and ability to support a viable business.
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