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

– About Us The Bond Assistance Program has successfully helped contractors bid on over $760 Million in projects throughout the State of California, of which $216 Million has been awarded to contractors. 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, and Sacramento In Southern California, the Program is supported by the following Public Agencies:

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

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) of Bondability Obtain Letter 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 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 of Bonded Work Track Record Net Worth / Financial Strength Demonstrable Capacity Access to Surety Credit

What Are the Benefits to Contractors of a Bonding Assistance Program? Establish their first bond or increase current capacity Enhance their ability to bid other public works projects Establish a track record of bonded work Larger prime contractors can reduce their risk by having small contractors “bond back”

How Does A Bond Assistance Program Help Small Contractors? Mitigate Exposure to the Surety/Finance Company Bond & Loan Guarantees Third Party Funds Administration Contract Monitoring Pre-Claim / Default Problem Resolution Better Prepare Contractor for Bond/Loan Underwriting Consultative Services Contractor Assessments (Pre-Qualify) Referrals to qualified resources, broker, bank, CPA Assistance/Subsidy towards CPA Prepared Financial Statements Facilitate Collateral Support and/or Funds Administration as Needed

Example of how the Bond Assistance Program Help Small Contractors 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

How Does Contractor Development Program Help Contractors? Through Our Contractor Development Program, Contractors have access to the following FREE Services: Program Enrollment & Assessment – Self Assessment, Development Plan, Marketing Profile Referrals to Resources, Brokers, Banks, CPA’s, Accounting cost subsidy up to $3,200 towards CPA prepared Financial Statements Education & Training Access to Outreach information on upcoming Bid Opportunities, Events, & Workshops Collateral Support for Bond Guarantees up to 40% of the contract amount or $250,000, whichever is less for awarded City Projects Third Party Funds Administration Contract Monitoring & Field Support Risk Management Services, including Pre-Claim & Default Problem Resolution Matchmaking with Prime Program Partners - *based on Prime’s requests and qualifications

How Does the Program assist Contractors to Maximize their Contracting Potential and Grow their Business? ENROLLMENT & ASSESSMENT Complete a 1-Page Enrollment Form Have a 1-On-1 Consultation with a Surety Specialist Refer Contractor to Broker to see if he/she can qualify for Bonding (if necessary) CONTRACTOR SELF-ASSESSMENT Indicates a rating on where you are in “Your” Business Indicates specific needs you may have The Self-Assessment is used to provide the Contractor with recommendations to the resources in the Development Plan CONTRACTOR DEVELOPMENT PLAN Provides the Contractor with Resources based on their individual Business needs Short and Long Term Goals are created and given to the Contractor Contractor meets with their Surety Specialist Quarterly to access progress PROFILE FREE Marketing tool to promote “Your” Business to Large Prime Contractors, Public Agencies, & other Peer Contractors Much more than a Business Card Update for FREE as your Company Grows

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 “No Contractor Left Behind”

Contractor Bonding, Technical Assistance & Contractor Development Programs City of Los Angeles (BAPLA) Bond guarantees up to 40% to a maximum of $250,000 (whichever is less) Accounting cost subsidy up to $3,200 for financial statements Funds Administration payment of fees 1% of contract price Training - individual counseling and group workshops on bonding, financing and business management Program Events – Convene contractor program events in Council Districts and participate in Proprietary Department events

Contractor Bonding, Technical Assistance & Contractor Development Programs Los Angeles Unified School District (LAUSD) Guarantees up to 40% of bond to a maximum of $400,000 Loan Guarantees to banks up to 50% to a maximum of $200,000 on contract specific lines of credit Contractors may utilize a combination of bond and finance guarantees up to a maximum value of $400,000 Funds Control fee paid

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

Merriwether & Williams Insurance Services, Inc. Contact Us Merriwether & Williams Insurance Services, Inc. 523 West 6th Street, Suite 650, Los Angeles, CA 90014 Tel. (213) 258-3000  Fax (213) 258-3099  www.imwis.com City of Los Angeles Program (BAPLA) Malise Cross, Surety Specialist  (213) 258-3088  malise@imwis.com Kristin Chang, Surety Specialist  (213) 258-3084  kristin@imwis.com City of Los Angeles – LAWA Program Rosa Osorio, Surety Specialist  (424) 646-7312  rosa@imwis.com Los Angeles Unified School District Program (LAUSD) Navid Barkhordar, Client Relations Manger (213) 258-3090  navid@imwis.com San Bernardino Community College District (SBCCD) Shanette Anderson, Program Manger (213) 258-3086  shanette@imwis.com