The Contractor Development Program The Basics of Bonding & The Contractor Development Program Presented By: Navid Barkhordar

Topics Covered I. Basics of Bonding Why, What & How? II. Challenges Experienced by Small & Emerging Contractors When Attempting to Obtain a Bond III. Resources Available to Assist Small & Emerging Contractors

 About Us Full-Service Property & Casualty Insurance Brokerage Firm Dedicated Construction/OCIP Practice Specialty Programs – SPARTA / Prompt Cover Contractor Bonding & Technical Assistance Programs Offices: San Francisco, Los Angeles, Oakland, San Diego, San Bernardino & Sacramento

Why Do I Need a Surety Bond? Surety Bonds are Mandated By Law on Public Works Projects Federal “Heard Act” (1894) & “Miller Act” (1935) Require performance & payment bonds for public work contracts over $100,000 State & Local “Little Miller Acts” (vary by state) Require performance & payment bonds for on state and local public works projects (amounts vary by entity) The use of Surety Bonds makes it possible for government entities to use private contractors for public construction projects under a competitive, sealed bid, open competition system where the work is awarded to the lowest responsive bidder.

A Three (3) Party Agreement that Guarantees a Contract: What is a Surety Bond? A Three (3) Party Agreement that Guarantees a Contract: CONTRACTOR (Principal) SURETY OWNER (Obligee) The Surety provides assurance to the Project Owner (Obligee) that the Contractor (Principal) is qualified, will perform a contract, and pay all subcontractors and material suppliers, as stipulated in the contract.

What is Surety Bonding? Three Party Agreement Protects another party You cannot buy it like Insurance You must qualify for it Unlike Insurance, no losses are expected Indemnification

The Difference Between Insurance and Surety

Types of Surety Bonds Components of Contract Surety Bonds: Bid Bond Surety bonds in construction are referred to as “Contract” surety bonds Components of Contract Surety Bonds: Bid Bond Guarantees contractor will enter into contract at bid price, if low bidder Performance Bond Guarantee completion of the contract Payment Bond Guarantees laborer, suppliers, and subcontractors will be paid Maintenance or Warranty Bond Guarantees against defects in workmanship or materials for a stated time after acceptance of work

What Surety Professionals Analyze The Three C’s of Surety CREDIT Financial Strength CAPACITY Ability to Perform CHARACTER Reputation With: Annual & interim financial statements Investment strategies Cost control mechanisms Work in progress Cash flow Net worth Working capital Bank & other credit relationships Prior experience on similar projects Equipment Personnel Past, current, and future workload (bonded & non-bonded) Continuity plan Organization Management plan Project Owners Subcontractors Vendors Suppliers Lenders

The Process of Obtaining Bonds Get this done as early as possible! Step 1: Apply for Bonding Capacity Obtain A Broker Gather Required Documentation Broker Sends Submission to Bond Markets (Underwriting) Obtain Letter of Bondability Step 2: Bid on a Public Works Project Identify Bidding Opportunity Request a Bid-Bond from Broker Submit Bid-Bond along with Bid Estimate to Owner Bid Results Received Step 3: Submit Final Bonds to Start Job Request Final Payment & Performance Bonds from Broker for this Job Submit Payment & Performance Bonds and Finalize Contract with Owner (N.T.P. & N.O.A.) Begin Work!

Cost of Surety Bonds Bid Bond No Charge Performance Bond ½ - 3% of Contract Price Payment Bond Price included with Performance bond

Why is it Difficult for Small and Emerging Contractors to Obtain Bonding Capacity? Surety Prequalification/Underwriting Capacity to perform Financial Strength Track Record & History of Company Organizational Structure Business Continuation Plans Trade References Analysis of all Projects in Progress Credit History Good Character Working Capital Quality CPA Prepared Financial Statements Broker Representation The Vicious Cycle Track Record of Bonded Work Net Worth / Financial Strength Demonstrable Capacity Access to Surety Credit

How Does The Contractor Development Program Help Small & Emerging Contractors?

The Four Pillars of Contractor Development Pillar 1: Assessment Enrollment Personal Account Manager Facilitated Referrals

The Four Pillars of Contractor Development Pillar 2: Bonding Assistance & Technical Support Assistance with obtaining or increasing bonding capacity Access to City of L.A. collateral support for bid, performance and payment bonds for qualified contractors Contract review, project assessment, and field support for program bonded contracts Assistance with project risk identification and mitigation Third party funds administration Accounting cost subsidy for CPA prepared financial statements Access to contract specific financing Project opportunities and industry events sent weekly via the "Blitz of the Week"

Contractor currently has $250,000 in available bond capacity Example of Collateral Support Enhances The Contractor’s Bonding Capacity Contractor currently has $250,000 in available bond capacity A job opportunity arises and the contractor’s bid estimate is valued at $350,000 Contractor is not able to pursue this opportunity due to lack of adequate bonding capacity The Problem The Program work’s with the Contractor’s bonding company to enhance the Contractor’s available bonding capacity The program posts a collateral guarantee on behalf of the contractor to increase their bonding capacity from $250k to $350k Contractor now has the adequate bonding capacity to obtain the bonds for this project and pursue this opportunity! The Solution

The Four Pillars of Contractor Development

The Four Pillars of Contractor Development Pillar 3: Education, Training & Contractor Support Group Classes on public construction best practices led by industry experts. One on One consultation Contract specific support on City of L.A. bond program supported contracts.

The Four Pillars of Contractor Development Pillar 4: Prime Partnership Program Strategic alliances with Program Prime contractors including matchmaking and referrals. Networking with public agency staff and peer contractors.

Who Are Our Target Contractors? Aspiring Contractors Entry Level Contractors Experienced Contractors Contractors Transitioning from Private and or Commercial to the Public Sector Prime and Subcontractors

Contractor Bonding, Technical Assistance & Contractor Development Programs

Contractor Bonding, Technical Assistance & Contractor Development Programs San Bernardino Community College District Guarantees up to 40% of bond to a maximum of $400,000 Training - Individual counseling and group workshops on bonding, financing, business management, and more Matchmaking – Connecting awarded Primes to smaller Subs www.mwissbccd.webs.com

Program Results In Southern California, the Program is supported by the following Public Agencies:

Merriwether & Williams Insurance Services, Inc. Contact Us Merriwether & Williams Insurance Services, Inc. 550 South Hope Street, Suite 1835 Los Angeles, CA 90071 Tel. (213) 258-3000  Fax (213) 258-3099 www.imwis.com www.lacondev.com