Bonding

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Getting to Know Our Trade Associations – Meet Andy Berg, Executive Director of NECA San Diego

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Author, Anne Wright, Surety Relationship Executive, Rancho Mesa Insurance Services, Inc.

As we have shared with our clients and viewers in the past, Rancho Mesa finds a tremendous amount of value in memberships of various trade associations. Becoming involved in these associations by attending events, and participating in committees, ultimately at board level, has allowed for a deeper understanding of the construction industry that we bond. I have found value in following legislation changes that affects the industry, as well as learning about the issues and processes available for contractors to run safer jobs, be more competitive in the industry, and manage contracts and financial reporting. It has made me better at what I do as a surety agent.

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Unlocking Working Capital in Construction: Options for Reducing or Releasing Retention

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Author, Andy Roberts, Surety Account Executive, Rancho Mesa Insurance Services, Inc.

Retention is a very common practice within the construction industry that typically involves 5-10% of each payment to the subcontractor being withheld until the project has been completed. The purpose behind this is simple, it is designed to make sure that subcontractors satisfy their contractual agreements before they receive their last payment for the work they have done.  While this practice serves a real purpose, it can cause significant issues for subcontractors if the payments are delayed.

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Strategies for General Contractors to Minimize Liability

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Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.

In Episode 355 of Rancho Mesa’s StudioOne™ podcast, host Andy Roberts, an Account Executive in the Surety Group at Rancho Mesa, is joined by Ted Lee, a Contract Bond Underwriter at Liberty Mutual Surety, to discuss strategies for general contractors to limit their liability when working with subcontractors. Ted shares his background and experience in the surety industry before delving into the main topic.

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Taking the Mystery out of Bonding for Public Works Projects

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Author, Andy Roberts, Account Executive, Rancho Mesa Insurance Services, Inc.

Obtaining bonding for public works projects can be a complex process but understanding what bonds are, why they are required, and what information the bond company needs can take a lot of the mystery out of the process and make it seem a lot less daunting.

Five Contract Provisions to Consider

Author, Anne Wright, Surety Relationship Executive, Rancho Mesa Insurance Services, Inc.

When the surety provides the performance and/or payment bond required by a contract, that contract is the basis of the surety’s guarantee. Simply put, the bonds follow the contract. Because of this, there are a few key things that the surety is going to want to review, and you should do the same. The goal is to make sure you, as the contractor, have everything in place to ensure your success.

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Surety Industry Forced to Innovate

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Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

Rarely are the words surety and technology advancement synonymous, and that’s because it’s hard to introduce advancements to an industry where so many obligees still require raised seals and wet signatures on the bonds they are receiving. However, due to some challenges that bond companies, insurance agencies and obligees have faced during the pandemic, the industry is being forced to innovate.

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What to Consider When Hiring a Bond Agent

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Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

With the passage of the Infrastructure Investment and Jobs Act, there is $125 billion of federal funds available for procurement. This provides a significant amount of federal construction work which will be put out to bid, with a vast majority of it requiring bonding.

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How Year End Financial Statement Preparation Influences Bonding Programs

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Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

As a contractor looking to qualify for a contract surety bond program, your team should be aware that company financial statements will be required by underwriters in most cases. This is largely due to the fact that a company’s financials, their balance sheet and an income statement, represent the primary source of information that a surety will use when building a bond program. And, the way this information is presented goes a long way in determining the amount of credit that a bond company is willing to extend. There are a few different options for presenting year-end financials, with the two most common being internal financials and CPA-reviewed financials.

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How Improving Equity Impacts Your Bond Program

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Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

In our current series of articles, we are taking a deeper look into the properties of a balance sheet that will affect a contractor’s bonding capacity. We have previously discussed bonding capacity and summarized working capital in regards to the impact it can have on a contractor’s capacity. However, another very important component on the balance sheet that surety underwriters will consider is net worth, also referred to as equity.

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A Contractor’s Guide to Bonding Capacity

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Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

For contractors that do a lot of bonded work, their bonding capacity is a critical element of their business. Capacity often determines which projects a company can and cannot pursue, so it is managed very closely. However, for contractors that are new to bonding or have not bonded previously but remain interested in performing bonded work, this is likely a foreign concept to them. So, what is bonding capacity, and what items determine the amount of capacity that a surety carrier is willing to offer?

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Bondability Letters – Surety Prequalification for Owners and General Contractors

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Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

In the normal process of bidding a construction project, our contractor clients are required to post a 10% bid bond to guarantee that they will execute and deliver a signed contract along with 100% performance and payment bonds, if they are awarded the referenced project. While this is a requirement for public projects, bid bonds have also become more prevalent for certain private projects. By approving the required bid bond, the surety company provides their stamp of approval that they have reviewed the bidding documents and are willing to support the contractor for the specific project.

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Get Your Bond Account in Shape for 2021 – A Surety Company Perspective

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Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

As we wind down the 2020 year, it is important for our contractor clients and prospects to start planning how the 12/31/2020 fiscal year end financial statement will look. The bond companies will use this information to set your 2021 Bond Credit Line for approval of your projects.

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Early Warning Signs of COVID’s Impact on Surety

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Author, Andy Roberts, Account Executive, Surety Department, Rancho Mesa Insurance Services, Inc.

The COVID-19 pandemic will have many long and short term effects on the surety industry. While the long term effects might not be known for years, some short term changes are already occurring. Early on, we have witnessed bond companies start to tighten their underwriting guidelines, and now we are seeing an increase in General Contractors (GC) requiring performance and payment bonds from their subcontractors.

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Bond Companies Thoroughly Track Status of Construction Projects

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Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

When the bond company approves a performance and payment bond for our contractor clients, they want to keep track of the project until completion - at which time the liability for the bond is no longer on their books. One tool they use to track a construction project is the Work In Progress Report (WIP) which the bonding company analyzes on a quarterly or six-month basis to track the profitability of the project on a percentage of completion basis. When the bond company sees that a project is 100% complete on the WIP or Completed Contract Report, they will mark the bond file as “closed,” once the warranty period has expired.

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Managing Working Capital is Key as Markets Tighten

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Author, Andy Roberts, Account Executive, Surety Department, Rancho Mesa Insurance Services, Inc.

Contractors often ask us what bond companies are looking for when they are reviewing balance sheets and income statements. The answer isn’t a simple one, because there are many items that underwriters look at when determining if they will write a bond for a contractor. Typically, the first thing an underwriter will do is calculate a contractor’s working capital.

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Surety Tightens Due to COVID-19 Pandemic

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Author, Andy Roberts, Account Executive, Surety Department, Rancho Mesa Insurance Services, Inc.

Before COVID-19, the construction industry had been enjoying one of the longest economic booms that this county has seen in recent memory. And, even though construction has been deemed essential, the industry is already seeing some effects from the pandemic, ranging from delayed material supplies, projects being shut down, and late or non-payments from project owners. 

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Skilled Labor Shortages Prompt Subcontractors to Provide Performance Guaranty

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Author, Andy Roberts, Account Executive, Surety Division, Rancho Mesa Insurance Services, Inc.

The construction industry is currently booming. According to a survey conducted by the AGC of America, and a recent article written by Rancho Mesa’s Kevin Howard, the industry shows no signs of slowing down, as 80% of contractors predict growth in 2020. While that’s great news for the industry, we are starting to see some trends that can cause some issues for contractors.   

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