May 2008

MAKE A PROFESSIONAL SURETY BOND AGENT A PART OF YOUR ADVISORY TEAM

Surety companies typically issue surety bonds through surety bond producers, also known as agents or brokers. A surety bond producer will know and understand different bonding companies’ underwriting standards and practices, and can match the needs of a contractor with the right surety company.

One of the surety bond producer’s most important functions when working with contractors is to prepare them for the surety company’s prequalification process. The producer starts by reviewing financial documents that the contractor will submit. This includes an analysis of the contractor’s working capital, net worth, and current revenue. The producer will also examine completed contracts, current contracts, and proposed bids.

After reviewing the data, the producer can discuss with the contractor the amount of risk they are taking on their total work program, and the profitability of that work.
After completing this analysis, the producer will recommend a line of surety credit to help the contractor avoid overextending. The producer will also format the contractor’s submission to meet the surety company’s requirements, and guide the contractor through the presentation.

An important part of the producer’s job is to maintain communication, both with — and between — the contractor and surety company. The first line of communication is with the contractor itself through site visits and visits to the contractor’s office. The second line of communication is between the contractor and the surety company through periodic reports on work progress, financial performance, and business plans.

Because of the important role the surety bond producer plays as an external advisor, choosing the right producer is an important task for a contractor. According to the Surety Information Office, a surety bond producer should have these qualities:

• A reputation for integrity and respect in the industry.
• A personal interest in the contractor’s success.
• An ability to build solid relationships with surety underwriters.
• An understanding of the construction industry and the construction management process, including estimating, bidding, building and cost control systems, as well as an understanding of basic credit principles.
• Knowledge of accounting and finance, especially construction accounting procedures, and the ability to analyze financial statements, work-in-progress, and cash flow.
• Knowledge of construction, subcontracts, and contract law.
• Authority to issue bonds on the surety’s behalf (within limits).
• An awareness of local, regional, and national construction markets.
• Experience in strategic planning and management practices to promote successful contracting.
• An active role in the construction community through involvement in and support of local and national construction and surety industry associations such as the National Association of Surety Bond Producers (NASBP), the Associated General Contractors of America (AGC), and the Associated Builders and Contractors (ABC).

Consider this checklist of qualities, and recommendations from your associates in the industry, when choosing this important advisor for your company.