Bad things can happen even on the best-run construction projects. Unfortunately, many small and midsize contractors don’t consult their surety underwriter soon enough after they run into difficulties on the job that might trigger a bond—an event which could put them out of business.
Although management and performance are the major factors determining which firms will survive troubled projects, the size of the contractor is also important, The reason: owners have an incentive stick with larger, more complex operations due to the their greater size, importance, and longer planning lead times. Because smaller projects are easier to deep-six, small and midsize contractors (those with work backlogs between $5 million to $100 million) are usually more far vulnerable to the threat of cancellation.
If you’re experiencing losses on a project, the first step is to develop plans for dealing with overhead, liquidity, workplace problems, and ongoing business concerns. Be sure to inform your bond surety about this immediately. The reason: because the surety has a vested interest in helping prevent a bonded default, they’ll do all they can to help you work through your difficulties.
However, if you withhold critical negative information about your situation, the reaction might be far different. Concern about your company’s financial condition, which makes you a riskier bonding candidate, might lead the surety to slash the size of bonds in the future. The surety might compel you to either bid on only smaller projects that pose less risk to the underwriter or postpone bidding on any new projects until you can demonstrate that your financial condition has recovered.
As always, honesty is the best policy.
For more information, please feel free to get in touch with us at any time.
