How Do I Obtain a Bond for a Project 4X Larger Than Any Project I’ve Ever Completed?
Partnering with a surety services firm that has extensive experience in the bond marketplace can provide contractors greater flexibility. Richard G. Anderson, CEO of Anderson & Catania Surety Services LLC, emphasizes how Anderson & Catania builds relationships that expand opportunities.
Is there a general rule that sureties apply to determine a contractors’ single project surety bond limit?
Most surety underwriters will try to relate the single job size to what the contractor has already handled in the past. Ideally, from a surety underwriter’s perspective, this underwriting approach results in support for incrementally “larger” contract opportunities. (e.g., 20% to 30% larger). Of course, this rarely happens as it seems larger opportunities could be double the size or have a much longer completion time. A larger job could then impact what the bond company perceives as weaknesses (inadequate bank support, lack of experience, perhaps lack of special equipment, etc.). These factors may cause the hesitancy of an underwriter to commit to a contractors’ desire to grow.
What aspect of the bid takeoff do you consider most important while working to secure approval for a surety bond request that is substantially larger than the contractors’ last largest completed project?
We hope the contractor can present some familiarity with their takeoff to give a realistic estimate of the upcoming bid. If they have a good relationship with some key subcontractors who can help them fashion a realistic budget, this can go a long way to give confidence versus the last-second “drastic elevation” of the bid estimate. To a surety underwriter, it is comforting to have a bid come in near a generic budget number.
What is the best way for a contractor to represent past performance to a surety company decision-maker?
Specific references from owners, architects and engineers, and other contractors can go a long way to make the surety decision-maker comfortable. Assuming a contractor does perform well, it is wise to ask for written references to have on hand for future opportunities. The bank likes this information also. Having a portfolio of references presents a powerful, positive picture of a contractor’s track record and their abilities to manage and successfully complete a project.
We were recently presented an opportunity with one of our clients who approached us with a surety bond need that was far larger than any other surety bond that they’ve ever gotten in the past.
Because of this uniqueness, we were not able to approach the surety bond market in the traditional manner. However, our relationships, again, with our underwriters allowed us to approach a market and took a path where, sitting down and, together, communicating with all parties and explaining the risk factors of a 4-year plus contract, the bond company was comfortable enough to allow us to provide the needed surety bond that that contractor is now performing and performing very well, and will make a very, very nice financial return for his organization.
But again, our relationships allowed us to approach a market in which somebody was willing to hear the story, hear the opportunity and evaluate it with good information and good communications.
Our client is going to have the benefit of having four years of revenue to support his company and to prosper.