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