Construction Bonding

Construction Bonding

To provide an expert's view on construction payment and performance surety bonds, I sat down with Ellen Neylan, the owner of performance bond Associates, a WBE performance bond agency and consulting company that gives specialty surety services to small, minority women and veteran owned contractors.

Often projects presented accompany a bonding requirement - too repeatedly this is often seen as an automatic disqualifier to an unbonded GC Visitor Management System In Singapore. Ellen stressed the abundance of options out there, and therefore the importance of differentiating all risk reduction instruments from viable alternatives.

Many GCs are working with their insurance agencies to tackle bondability needs without realizing surety agents are their own specialty that add a special , more precise value. Ellen explained to me the contrast between a performance bond and subcontractor default insurance (SDI), two concepts which will be easily confused. In most cases, SDI is extremely inferior to surety bonding. Surety bonds exist to guard taxpayer dollars and a general contractor's organizational health, while SDI serves to permit a GC to default subcontractors quickly with no payment protection downstream for anyone. High deductibles are related to it - and since there's no qualification process to realize this protection, it's far more of a high-risk instrument.

Along with the confusion of bonds and SDI seeming interchangeable, comes a misinterpretation that bonds and insurance generally are comparable. I've previously heard the phrase that Bonds aren't insurance-they're a credit instrument and Ellen confirmed that in her Bonds 101 workshop, this is often a thought that's represented as fact.

Even though insurance companies can provide bonds, contractors need to qualify for bonding, which makes it quite different than insurance. Anyone can purchase insurance if they will afford it, however bonds require an in-depth qualification process that fully vets a firm.

Prior to my conversation with Ellen, I read that a lot of bonding professionals sum up their evaluation of a contractor with the utilization of the three c's character, capacity, and capital - and that i was interested to listen to if this captured her interpretation of the GC review scope. She emphasized that those are definitely the most ideas, however the importance of every area isn't quite weighted equally in thirds.

The surety typically puts 70% emphasis on financial strength. For the capacity consideration, the contractor's experience with project management and portfolio of labor shape their rating. Some factors that are evaluated include

- Staff resumes
- Typical project valuation sweet spot
- Scope of labor
- References with subcontactors, suppliers, and banks

When evaluating the character review, this is often a touch tougher . Ellen rightfully mentioned that you simply don't really realize a contractor's true colors until there's a problem . Since surety bonds are essentially a partnership between the surety and therefore the contractor, the surety has got to feel comfortable that the contractor can help them resolve any problems and deliver on promises. Project success is essentially tied to a GC working with the surety in order that they do not need to file a loss.