Basics of Contract Surety Bonds for Trade Subcontractors (Part 2)

Prequalification

There are many different surety companies that sell bonds to subcontractors, and all have their own
way of doing things, but they do all share some basic steps to prequalify a bonding applicant. The
important thing to know for first time applicants is that this is not a very quick process. It’s not realistic
to plan on bidding as a subcontractor a week from now and expect to get a bid bond that fast. That’s
why prequalification and establishing a bonding limit in advance with a reputable surety will pay
dividends in the long run.

If you plan to get your subcontracting business prequalified for Bid and Performance and Payment
bonding, plan on having the following information ready when you apply:

• Organization chart of key employees along with their resume’s.
• Business plan that describes the scope and type of work your business seeks, the prospects for
  such work, and your growth and profit goals.
• Continuity Plan that describes how the business will survive in the event of the owner’s death or
  disability, including documentation of any life or disability insurance showing the business as the
  beneficiary.
• Work in Progress report with a past history log of your company’s largest finished jobs, including
  the names of who you worked for and profit earned on those projects.
• Banking information including line of credit to supplement the business working capital and
  provide temporary cash flow when needed.
• Letters of recommendation or references from Construction Managers or General Contractors
  you’ve worked with previously, project owners, architects, etc. from completed projects.
• Financial Statements – most surety companies will request three years of fiscal year-end
  statements. Depending on the limits of surety your company needs, they may also require CPA
  audited statements. Such information generally includes the Accountant’s opinion page,
  Balance sheet, Income statement, Statement of cash flow, Accounts receivable and payable
  schedules with aging, Schedules of contracts in progress and contracts completed, Schedule of
  general/administrative expenses, Explanatory footnotes, and Management letter. Having a CPA
  that is knowledgeable in preparing such information for submission to sureties can be very
  beneficial.

Maintaining a Good Surety Relationship

Just like having good relationships with your banker or your attorney, having good insurance relationships are equally important. Developing a steady relationship with a quality surety using the guidance and assistance of your insurance agency is very beneficial as your subcontracting business grows and as the economy ebbs and flows with time. There may be difficult times to go through and the surety may not always be willing to extend the surety
capacity the subcontractor would like to have, but maintaining the relationship often builds trust and
increases the commitment of the surety to the subcontractor over time. Working with a surety may
require changes in the way your company does business, keeps its books, etc. but in the end these
changes could have long-term benefits.

About Rooney Insurance Agency

Rooney Insurance Agency, established in Tulsa, Oklahoma in 1960, has provided customized business and personal insurance and employee benefits solutions to individuals and businesses in the state of Oklahoma and throughout the United States. We work to ensure that each client’s insurance coverage fits their specific needs, addresses their key risks, and protects their valuable assets. For more information on how we can help you today, contact us at (918) 582-0565.

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