1. Surety Bonds The Sensible Choice For Managing Risk

2. Can Surety Bonds Help You? How do you evaluate & manage risk? How do you ensure projects are completed on time, on budget, and to contract specifications? How do you ensure contractors successfully meet obligations?

3. Can Surety Bonds Help You? Bid Bond Performance Bond Payment Bond

4. Surety Bonds vs. Traditional Insurance Surety BondsInsurance 3-party2-party Risk transfer Duty to obligeeDuty to insured Regulated by State Insurance Departments Premium fee for prequalification services Premium actuarially determined Project specificUsually term specific Penal sumPolicy limits

5. Contract Surety Bonds Bid Bond Performance Bond Payment Bond

6. Contract Surety Bonds Bid Bond Performance Bond Payment Bond

7. Contract Surety Bonds Bid Bond Performance Bond Payment Bond

8. Fundamentals of Surety Contractor default is preventable Surety companies & producers prequalify contractors Surety companies back the bond with their own assets

9. The 3 Cs Of Prequalification Capital Capacity Character Capital Capacity Character

10. Analyzing Financial Strength Capital Financial statements Working capital Work-in-progress Indemnity

11. Evaluating Ability To Perform Capital Financial statements Working capital Work-in-progress Indemnity Capacity Resumes Contingency plan Business plan Equipment

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

13. Reviewing Business Ventures Document business commitments that can affect the contractor’s business –Owning property –Side ventures Surety

14. Contractor Failure Source: Dun & Bradstreet

15. Why Do Contractors Fail? Failure Materials Shortages Over Expansion New Owner Cost Escalations Sub Failure Change in Scope Inadequate Management Failure

16. Why Do Contractors Fail? Work Environment Economic Downturn Death or Illness of Key Employee Onerous Terms Inclement Weather Failure

17. Claims Surety ObligeePrincipal

18. Expediting The Claims Process Clearly define default in contract Submit status reports to surety Promptly notify surety of performance or payment problems Owner must file formal declaration of default

19. Responsibility Of The Surety Acknowledge claim Investigate claim Determine & fulfill obligations Surety

20. Performance Bond Protection Re-let the job Provide replacement contractor Retain original contractor Reimburse owner penal sum Surety

21. Payment Bond Protection Assures payment No mechanics’ liens Keeps subcontractors on the job Surety

22. Surety Bonds vs. Letters of Credit Surety CreditBank Credit PremiumInterest Expect reimbursement if loss Repay loan Principal benefit of surety credit Borrower has benefit of bank $

23. The Value Of Surety Bonds Bid Bonds Performance Bonds Payment Bonds

24. The Value Of Surety Bonds Bid Bonds Performance Bonds Payment Bonds

25. Bid Bonds Performance Bonds Payment Bonds The Value Of Surety Bonds

26. Cost of Surety Bonds Project Amount Approx. Bond Premium $1 Million$7,700 – $13,500 $5 Million$33,200 – $47,250 $10 Million$56,950 – $81,000 $20 Million$101,950 – $146,000 * Premiums may vary depending on size, type & contractors bonding capacity.

27. The Underlying Agreement Look at obligations Determine risks Match capable principal to fulfill agreement Surety

28. The Owner’s Responsibilities Provide working set of plans and specifications Establish terms of the agreement Ensure full & timely payment Maintain adequate insurance Pay property taxes Communicate Owner

29. 1.Owner specifies surety bonds in contract documents 2.Contractor contacts surety bond producer 3.Producer guides contractor through prequalification 4.Contractor obtains bonds & delivers to owner Bond Specifications

30. Qualify Your Contractor’s Surety A.M. Best Companywww.ambest.comwww.ambest.com Dun & Bradstreetwww.dandb.comwww.dandb.com Standard & Poor’swww.sandp.comwww.sandp.com Moody’swww.moodys.comwww.moodys.com Treasury Dept. www.fms.treas.gov/c570/c570.htmlwww.fms.treas.gov/c570/c570.html State Insurance Dept.www.naic.orgwww.naic.org

31. For More Information Surety Information Office 1828 L St. NW, Suite 720 Washington, DC 20036 202-686-7463 | Fax 202-686-3656 www.sio.org | sio@sio.org