Obtaining Surety Credit An Introduction to the Surety Process for Contractors & Subcontractors.

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Presentation transcript:

Obtaining Surety Credit An Introduction to the Surety Process for Contractors & Subcontractors

Surety Bonds Mandated on Public Works Federal –Heard Act (1894) & Miller Act (1935) State & Local –“Little Miller Acts”

What is a Surety Bond? Surety ObligeePrincipal

Types of Bonds Bid Bond Performance Bond Payment Bond

Types of Bonds Bid Bond Performance Bond Payment Bond

Types of Bonds Bid Bond Performance Bond Payment Bond

Fundamentals Of Surety Bonds Surety BondsInsurance 3-party2-party Risk transfer Duty to obligeeDuty to insured Regulated by State Insurance Departments Premium fee for prequalification services Premium actuarially determined Project specificUsually term specific Penal sumPolicy limits

Financial Strength CharacterExperience Equipment Credit History Banking Relationships Prequalification

First Step Select knowledgeable surety bond producer www. nasbp. org

Role of the Producer Contractor Surety Company Attorneys Producer Lenders Auditors Advisory Group Prequalification Process

Attributes of a Quality Surety Bond Producer Construction Specialty National Trends Local Markets Construction Finance Reputation & Integrity Contract Docs & Law Strategic Planning Industry Associations Surety Bond Producer

Value of the Producer Matches Needs Offers Advice Compiles Documents Reviews Documents Background Investigation Recommends Credit Guides contractor Communication Surety Bond Producer

Second Step Select knowledgeable CPA AICPA Audit Guide Audited financial statements

Financial Statement Analysis Opinion Page Balance Sheet Income Statement Cash Flow Statement Background Investigation Account Schedules Contract Schedules Explanatory Notes Financial Statement

Third Step File submission to surety company Contractor & underwriter meetings

The Surety Company’s Checklist Good character Experience matching contract requirements Necessary equipment Financial strength History of paying subs and suppliers on time Bank relationship Established line of credit

Information Surety Needs Organization Chart Key Employee Resumes Business Plan Work In Progress Emergency Plan Sub References Line of Credit Recommendations Underwriting Requirements

Three Cs of Surety Underwriting Capital Capacity Character Capital Capacity Character

Cost of Surety Bonds Bid BondNo charge Performance Bond ½ - 2% of contract price Payment Bond Price included with performance bond

For More Information Surety Information Office | SIO is a joint initiative of The National Association of Surety Bond Producers (NASBP) and Surety & Fidelity Association of America (SFAA).