surety bonds

Surety Bonds

• Performance Bond

• Payment Bond

Benefits Of Bonding Subs

• Prequalified subs

• Risk Transfer

• Improves contractor’s credit standing

BusinessOperations

FinancialStrength

Experience

SubDocuments

Exposure &Progress

Size & Location

AbilityTo Perform

Prequalification Process

Indemnification

• Corporate & personal assets on the line

• Incentive for sub to complete bonded work

Availability of Surety

• Traditional sureties

• Specialized sureties

• SBA program

Confirm Ability To Provide Bonds

Limited Surety Capacity

• Labor-only contract

• Phased contract

Qualify The Subcontractor’s Surety

A.M. Best Company www.ambest.com

Dun & Bradstreet www.dnb.com/us

Standard & Poor’s www.standardandpoors.com

Moody’s www.moodys.com

Treasury Dept. www.fms.treas.gov/c570/c570.html

State Insurance Dept.www.naic.org/state_web_map.htm

Surety Rates

Bid BondUsually no or minimal charge

Performance Bond½ - 2% of contract price

Payment BondUsually included with Performance Bond)

Surety Communications

• Job status reports

• Provide early warnings of serious problems

Dispute vs. Default

• Performance obligations defined in subcontract

• Notify surety of problems

• Formal written declaration of default

Why Subcontractors Fail

AccountingIssues Management

Issues

PersonnelIssues

PerformanceIssues

UnrealisticGrowth Failure

If Default Occurs

• Acknowledge claim

• Investigate claim

• Determine obligations

• Fulfill obligations

Surety

Surety’s Options

• Assist subcontractor to completion

• Bring in replacement

• Negotiate financial settlement

Surety

Establishing A Bonding Policy

• Establish thresholds

• Articulate exceptions

• Notify subcontractors & surety

Contractor

For More Information

Surety Information Office1828 L St. NW, Suite 720

Washington, DC 20036

202-686-7463 | Fax 202-686-3656

www.sio.org | sio@sio.org