Not all surety brokers are the same. If you are bidding on a job that requires a bond, you need a broker that works exclusively in the construction industry and understands surety — someone who can negotiate with bonding companies for competitive rates, and have it done for you on time, every time. In other words, you need CLG Insurance.

Here are 10 Ways to ensure you get the surety bonds you need for your construction business.

1. Find a qualified surety broker. First and foremost, identify someone you can work well with. In addition, you would be well advised to align yourself with a broker that works with bonds every day, rather than an insurance broker that does it as a convenience for his clients. How do you find a good surety broker? Ask around at association meetings. Or find out who your competitors are using.

2. Get the bond request to your broker as soon as possible. You’ve decided to bid a job that requires bonding – you’ve gotten the specs from the owner, and the estimating department is putting together a cost breakdown. Make sure you keep your surety broker in the loop early by sending in a bond request form and attaching a rough cost breakdown. The more time your broker has to work on the bond approval, the more likely you will get your bond on time. Keep in mind that your surety company must approve the bid prior to bond issuance and this process takes time. Last minute requests will not be approved – and it chips away at your credibility for future bond requests.

3. Keep the lines of communication open. Your surety broker should be treated as a team member and an ally. He or she is working hard on your behalf to secure bonds with the right surety company, and he has valuable insight into the bonding process. Communicate good – and bad – news about your company in a timely manner. Surety companies don’t react well to “surprises.”

4. Measured growth for stability and profitability. You won’t grow to $100 million dollars in revenue overnight, nor should you. Accumulate several manageable jobs in your niche, and then grow in job size from there as your experience and capacity dictates. Spread the risk and don’t take on anything more than you can reasonably handle. (Remember to factor in seasonal weather issues, differing site conditions, geographic location, subcontractor and owner relations, etc., when deciding on a job.) “Good” jobs can (and often do) go bad – and more than one contractor has lost his business because of it.

5. Let your broker know if your bid estimate escalates above 10% of the original estimate. When bid day comes, make sure your broker is apprised of your final bid number. Surety companies don’t look favorably on bids that differ substantially from the original estimate. And, by the way, your surety company will also question bid spreads¹ that are greater than 10%.

6. Find a good CPA with construction experience. Surety companies prefer CPA’s with construction experience because financial reporting for contractors is unique to the industry. A well-crafted, externally prepared POC financial statement (a review or an audit, ideally) paints a concise and accurate picture of the contractor’s status and is usually the first step in the surety underwriting process.

7. Remember: a surety bond is not insurance. You are not transferring risk to a surety company, only getting a prequalification and an extension of credit in exchange for the premium you pay. The risk is yours. If a surety company pays an owner for your default they will look to you (corporately AND personally) for reimbursement — dollar for dollar —guaranteed.

8. Surety underwriting 101: Character, Capacity, and Capital. Character: as in the quality of yours, is a major consideration for a surety. Capacity: your capacity to do the work on time and within budget, and consistent with the provisions of the contract. Capital: are you deep in debt? Or are you maintaining positive cash flow with a manageable amount of “good” debt? Keep these things in mind when establishing a bond program with a surety. Your surety company certainly is.

9. Keep your broker up to date on the progress of your jobs. And let him know when they’re nearing completion. Because the performance and payment bond follows the contract, your surety will bill you for additional premium on a job that has increased in contract value. And you’ll more than likely get a credit for a contract that has decreased.

10. With few exceptions, bid bonds are issued at no charge, and the premium for a one year maintenance bond is built into the cost of the performance and payment bonds. You’ll pay a bond premium when the performance/payment bonds are issued, after you’ve been awarded a job. Be wary of a broker that charges a fee for bid bonds.

About CLG Insurance

For over 30 years, CLG Insurance has provided business and individuals in the Tri-State region with the broadest selection of carriers, programs and policies, custom tailored to their specific needs.

For answers to all your questions regarding Surety Bonds, please contact our bonds specialist, Mike Dugan.

CLG's strategic relationships with insurance carriers, independent brokers, financial institutions and technology providers, ensure that our clients receive innovative and reliable insurance solutions backed with outstanding customer service.

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