Risk & Responsibility Understanding Contract Surety Understanding Contract Surety

Contract Surety Bonds Bid Bond Performance Bond Payment Bond

Contract Surety Bonds Bid Bond Performance Bond Payment Bond

Contract Surety Bonds Bid Bond Performance Bond Payment Bond

Who Requires Bonds? Public Sector –Federal Government –State & Local Governments

Who Requires Bonds? Private Sector –Private Owners –Lending Institutions –General Contractors

Principles Of Contract Surety Surety ObligeePrincipal

Prequalification Financial Strength CharacterExperience Equipment Credit History Banking Relationships

Prequalification Capital Capacity Character Capital Capacity Character

Prequalification Capital Financial statements Working capital Work-in-progress Indemnity

Prequalification Capital Financial statements Working capital Work-in-progress Indemnity Capacity Resumes Contingency plan Business plan- short & long term Equipment

Prequalification Character Reputation Relationships References Capital Financial statements Working capital Work-in-progress Indemnity Capacity Resumes Contingency plan Business plan- short & long term Equipment

Contractor Failure Although prequalification greatly reduces the likelihood of contractor default, many things can cause contractor failure.

Contractor Failure Onerous Contract Terms Over Expansion Change in Scope of Work Subcontractor Failure Uncontrollable Factors Poor Accounting/ Financial Controls Project Management Problems Owner Failure

Case in Point “Surety Involvement Saves Projects”

The Facts Old line family-owned contracting company Company sold to 5 key employees 16 projects in progress $20 million school with cost overruns & schedule delays

The Problems Default on 3 senior citizen homes & 1 low income community rehab center Delays would hinder substantial HUD financing and tax credits

What Happened Contractor over- extended Re-work slowed schedule Key subs not bonded

The Surety’s Solution Hired a replacement contractor with experience on HUD projects Assembled team to handle HUD, federal, & state requirements Retained and paid subcontractors, laborers & suppliers Financial help with schools

The Outcome Paperwork not delayed Work completed on time No loss of tax credits or financing Occupied in time to satisfy HUD deadlines

The Outcome Surety protected school district and taxpayers from $1,865,753 loss Premium paid for bonds: $129,290

Benefits of Surety Bonds Qualified bidders Reduced risk of liens Timely project completion Defect protection Owner

Benefits of Surety Bonds Contractor Contract reviews Continuity plans Expertise Project qualification Private construction Lending institutions Subcontractor protection Technical, managerial, financial assistance

For More Information Surety Information Office 1828 L St. NW, Suite 720 Washington, DC | Fax |