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Published byElvin Bugg Modified over 10 years ago
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Failure Rates: 2002-2012 Source: BizMiner Building, heavy/highway, and specialty trade contractors In BusinessSurvivorsFailure Rate 853,372 (2002) 610,357 (2004) 28.5% 850,029 (2004) 649,602 (2006) 23.6% 1,155,245 (2006) 919,848 (2008) 20.4% 897,602 (2009) 702,618 (2011) 21.7% 918,483 (2010) 696,441 (2012) 24.2%
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Financial Strength CharacterExperience Equipment Credit History Banking Relationships Prequalification
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RISK High Materials prices Unreasonable owners Onerous contracts Shortage of qualified, skilled workers Contractor Failure Risks Insufficient Capital Slow collections Low profit margins
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RISK Materials Shortages Over Expansion New Owner Inclement Weather Contractor Failure Risks Sub Failure Change in Scope of Work Inadequate Management
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Reasons for Contractor Failure Accounting Problems Change in Leadership Scope of Business Material/ Equipment Shortages Unrealistic Growth Failure Labor Difficulties Lack of Experience
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Accounting Issues Inadequate cost tracking systems Estimating or procurement problems Underinsured Improper accounting practices
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Management Issues Leadership changes No continuity plan when key person dies or becomes disabled
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Personnel Issues Key staff leave company Character issues
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Performance Issues Unrealistic growth Change in type or scope of work Poor project selection Onerous owners Unsettled claims & change orders
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Unrealistic Growth Unrealistic Growth Increase in Backlog Work Shorter Lead Time
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Factors Beyond Control Materials Shortages Site Conditions Inflation Labor Difficulties Weather Delays Economic Downturn Failure
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Ineffective Financial Management System Tight cash flow Slow receivables Past due bills Vendors demanding cash
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Bank Lines of Credit Constantly Borrowed to Limit All credit fully secured Lines not renewed
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Poor Project Management Inadequate supervision Not getting best prices Projects behind schedule Claims Litigation
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No Comprehensive Business Plan No contingency plans No “ road map ” No goals No objectives
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Poor Estimating & Job Cost Reporting Revenue & margins decrease Continued operating losses Loss of bonding capacity Bid jobs too low
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Communication Problems Disputes between contractor and owner Poor communication from field to management
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Loss of Loyal Customers Decreasing reputation for company ’ s ability to perform contracts on time & within budget
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Tips for Contractors to Avoid Default Rights & responsibilities Capabilities Growth & overhead Causes & warning signs Communication Contractors
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Tips for Contractors to Avoid Default Contract Bond forms Qualify surety Qualify owner Surety Relationship Contractors
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Tips for Contractors to Avoid Default Construction-oriented CPA Adjust overhead Bank credit Conserve capital Bond subcontractors Contractors
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Claims RightsObligations Resolution Completion Expectations
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Understand bond Cooperate Comply with contract Don’t overpay Lien waivers Timely default Termination Tips for Owners – Navigating a Claim Owners
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For More Information Surety Information Office (SIO) www.sio.org | sio@sio.org SIO is a joint initiative of The Surety & Fidelity Association of America (SFAA) and National Association of Surety Bond Producers (NASBP).
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