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.

CONTRACTOR (Principal) OWNER (Obligee) SURETY A Three (3) Party Agreement that Guarantees a Contract: 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.

 Three Party Agreement  Protects another party  You cannot buy it like Insurance  You must qualify for it  Unlike Insurance, no losses are expected

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

The Three C ’ s C REDIT Financial Strength C APACITY Ability to Perform C HARACTER 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

Obtain A Broker Gather Required Documentation Broker Sends Submission to Bond Markets (Underwriting) Obtain Letter of Bondability Identify Bidding Opportunity Request a Bid- Bond from Broker Submit Bid-Bond along with Bid Estimate to Owner Bid Results Received 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! Step 1: Apply for Bonding Capacity Step 2: Bid on a Public Works Project Step 3: Submit Final Bonds to Start Job Get this done as early as possible!

Bid BondNo charge Performance Bond ½ - 3% of contract price Payment Bond Price included with performance bond

 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 Surety Prequalification/Underwriting Track Record of Bonded Work Net Worth / Financial Strenght Demonstrable Capacity Access to Surety Credit The Vicious Cycle

 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

Contractor Benefits  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”

The Challenge:  ABC Construction Co. has $250,000 in bond capacity currently available to their company.  However, they have recently come across an opportunity for which their bid estimate is approximately $350,000.  Being that their bond capacity is limited to $250k, they are having a difficult time in obtaining a bond for $350k to support this contract.

The Solution: A Bond Assistance Program can potentially negotiate with the Contractor's Surety Company to post a collateral guarantee to them on behalf of the contractor (up to the maximum limits afforded by the program) so that the Surety Company may increase the Contractor’s bond capacity to $350,000  thereby allowing the Contractor to obtain the bonding required for this contract.

These programs are seen as a compliment to entities who strive for greater distribution of contracting dollars into the communities they serve and have a multiplicative impact on creating more local resident hiring particularly from diverse communities.  Program Services Contractor Outreach Contractor Consultation / Technical Assistance Bond / Contract Financing Guarantee Underwriting Third Party Funds Administration Post Award Contract Monitoring and Support Workshops / Seminars  Program has received recognition and awards from: “Med Week” – Award for Finance Programs – 2006, 2007 National Association of Minority Contractors Advocate Award 2005 Business to Business “Service of the Year” – 2004 San Francisco Business Times – Women in Leadership Award 2000 City of Los Angeles Department of Public Works Commendation – 2008 Participating contractors have increased their bonding/contracting capacity in some cases 3-fold in just 3 years!

 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

 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

 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 and business management  Matchmaking, connecting awarded Primes to smaller Subs

 Property & Casualty Insurance Brokering  Owner Controlled Insurance Programs (OCIP)  Risk Management Consulting  Contractor Bonding Programs & Technical Assistance Serving Corporations, Public Entities, and Non-Profits in Unique Ways Dedicated Construction Practice & Owner Controlled Insurance Programs $660 Million in Bonding for Small/Minority Contractors Specialty Programs – SPARTA/Prompt Cover

City of Los Angeles Program (BAPLA) Malise Cross, Surety Specialist  (213)  Kristin Chang, Surety Specialist  (213)  City of Los Angeles – LAWA Program Rosa Osorio, Surety Specialist  (424)  Los Angeles Unified School District Program (LAUSD) Navid Barkhordar, Client Relations Manger  (213)  San Bernardino Community College District (SBCCD) Shanette Anderson, Operations Manger  (213)  Merriwether & Williams Insurance Services, Inc. 523 West 6th Street, Suite 650, Los Angeles, CA Tel. (213)  Fax (213) 