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

2. 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

3.  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

4. 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.

5. 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.

6. 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

7. The Difference Between
Insurance and Surety

8. 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

9. 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

10. 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!

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

12. 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

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

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

15. 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"

16. 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

17. The Four Pillars of Contractor Development

18. 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.

19. 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.

20. 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

21. Contractor Bonding, Technical Assistance & Contractor Development Programs

22. 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

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

24. Merriwether & Williams Insurance Services, Inc.
Contact Us
Merriwether & Williams Insurance Services, Inc.
550 South Hope Street, Suite 1835
Los Angeles, CA 90071
Tel. (213)  Fax (213)