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Surety Bonds 101 The Basics of Bonding. Surety Bonds Vs. Traditional Insurance Surety BondsInsurance 3-party2-party Risk transfer Duty to obligeeDuty.

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Presentation on theme: "Surety Bonds 101 The Basics of Bonding. Surety Bonds Vs. Traditional Insurance Surety BondsInsurance 3-party2-party Risk transfer Duty to obligeeDuty."— Presentation transcript:

1 Surety Bonds 101 The Basics of Bonding

2 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

3 What is Surety Bonding? Surety ObligeePrincipal

4 Types of Surety Bonds Bid Bond Performance Bond Payment Bond

5 Types of Surety Bonds Bid Bond Performance Bond Payment Bond

6 Types of Surety Bonds Bid Bond Performance Bond Payment Bond

7 Capacity Financial Strength Company History Organization Continuation Plans References Prequalification Work In progress

8 Common Perceptions PerceptionReality Surety wants contractors capable of completing the project Surety wants sound businesspersons who run construction companies Surety wants contractor to fulfill contractual obligations Surety wants contractor to generate income by fulfilling contractual obligations No failures leads to increased surety capacity Ability to grow business & generate revenue leads to increased surety capacity

9 Benefits of Bonds Financial Security Construction Assurance

10 Why Do Contractors Fail?

11 Factors Beyond Control Materials Shortages Site Conditions Inflation Labor Difficulties Weather Delays Economic Downturn Failure

12 RISK High Materials prices Unreasonable owners Onerous contracts Shortage of qualified, skilled workers Contractor Failure Risks Insufficient Capital Slow collections Low profit margins

13 RISK Materials Shortages Over Expansion New Owner Inclement Weather Contractor Failure Risks Sub Failure Change in Scope of Work Inadequate Management

14 Contractor Failure Accounting issues Management issues Personnel issues Performance issues Unrealistic growth Failure

15 Accounting Issues Inadequate cost tracking systems Estimating or procurement problems Underinsured Improper accounting practices

16 Tips for Contractors To Avoid Default Construction-oriented CPA Adjust overhead Bank credit Conserve capital Bond subcontractors Contractors

17 Surety Bonds and Insurance Coverage for Small and Emerging Contractors 817-226-4311 – Local 866-226-4311 – Toll Free


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