Transcript Document
Obtaining Surety Credit An Introduction to the Surety Process for Contractors & Subcontractors Surety Bonds Mandated on Public Works • Federal – Heard Act (1894) & Miller Act (1935) • State & Local – “Little Miller Acts” What is a Surety Bond? Principal Obligee Surety Types of Bonds • Bid Bond • Performance Bond • Payment Bond Types of Bonds • Bid Bond • Performance Bond • Payment Bond Types of Bonds • Bid Bond • Performance Bond • Payment Bond Fundamentals Of Surety Bonds Surety Bonds Insurance 3-party 2-party Risk transfer Risk transfer Duty to obligee Duty to insured Regulated by State Insurance Departments Regulated by State Insurance Departments Premium fee for prequalification services Premium actuarially determined Project specific Usually term specific Penal sum Policy limits Prequalification Financial Strength Character Equipment Experience Credit History Banking Relationships First Step Select knowledgeable surety bond producer www.nasbp.org Role of the Producer Prequalification Process Attorneys Lenders Contractor Auditors Advisory Group Producer Surety Company Attributes of a Quality Surety Bond Producer Construction Specialty National Trends Construction Finance Strategic Planning Local Markets Reputation & Integrity Surety Bond Producer Contract Docs & Law Industry Associations Value of the Producer Matches Needs Offers Advice Reviews Documents Guides contractor Compiles Documents Background Investigation Surety Bond Producer Recommends Credit Communication Second Step • Select knowledgeable CPA • AICPA Audit Guide • Audited financial statements Financial Statement Analysis Opinion Page Balance Sheet Cash Flow Statement Contract Schedules Income Statement Background Investigation Financial Statement Account Schedules Explanatory Notes Third Step • File submission to surety company • Contractor & underwriter meetings The Surety Company’s Checklist Good character Experience matching contract requirements Necessary equipment Financial strength History of paying subs and suppliers on time Bank relationship Established line of credit Information Surety Needs Organization Chart Key Employee Resumes Work In Progress Line of Credit Business Plan Emergency Plan Underwriting Requirements Sub References Recommendations Three Cs of Surety Underwriting Capital Capacity Character Cost of Surety Bonds Bid Bond No charge ½ - 2% of contract Performance Bond price Payment Bond Price included with performance bond 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 | [email protected]