The Smith Manus Blog

Can your surety bond program support the spike?

If you are a federal contractor, September 30th is a date you know all too well. Some may even say it’s Christmas time for government contractors as the federal government yearend brings fiscal yearend spending and contract awards. Just as it can be a challenge choosing which holiday gifts to purchase among the many options and requests, the selection of target projects and the corresponding preparation of their proposals also can be a real challenge – especially when managing your surety program. That process can be fraught with hazards depending on your surety relationships.

History tells us you’ll be awarded somewhere between 5-10% of the contracts you pursue…but, does your surety company understand the phenomenon of September 30th?

Does your bonding company take the bid/award ratio into consideration when underwriting this spike in bid requests which may result in open bids well in excess of your surety limits?

Is your surety company willing to commit to providing your business the temporary flexibility to bid on enough projects so your company can win its share of the yearend glut?

If you haven’t asked these questions, now is the time

Even before asking these questions, make sure both your surety company AND your agent/broker are accustomed to working with other federal contractors. Challenge both of them on their knowledge of the multitude of federal contracts/contracting mechanisms. Request the names of other federal contractors they bond.

It’s understandable why companies like yours focus on the federal arena. The reality is that in today’s world, there are two distinct construction industry economies – one economy where the funding is robust (federal) and one economy where funding is limited or non-existent (state/local). This distinction has never been greater.

First, federal contractors are often bidding against a limited number of other federal contractors depending on the contacting mechanism. On state/local projects, the bid list is open to all bidders and as such these contracts are being won at sale prices.

Second, most federal contractors cover a wide regional, national, and even international territory. When state/local contractors work outside their states and cities, surety history dictates very clearly that the risk increases exponentially.

Don’t be an underwriting fatality

It is imperative that your surety company and your bonding agent/broker are experienced in working with federal contractors. If they are not, you may be underwritten based on the dismal state/local contracting climate. Don’t become a government yearend underwriting fatality.

Contact us for addtional information today!

Brook Smith
President, Smith-Manus Surety Bonds

The American Institute of Architects has released the revised versions of two AIA Bond forms – AIA Document A310 Bid Bond and AIA Document A312 Performance Bond and Payment Bond. The changes come after a year of revision and reviews proposed by representatives from leading surety bond associations. With the amount of consideration taken into account for these revisions, the new bond forms are expected to continue as the industry standard, representing the fair and balanced interests of their users.

The new forms retain the majority of the original language. The revisions to the bond forms were made to clarify language and to address concerns raised by stakeholders. Below is a “Commentary and Comparison” link released by the AIA which outlines each change in detail.

AIA Bond Form Commentary and Comparison

Here are links to samples of the two new bond forms:

AIA Document A310 – 2010, Bid Bond
AIA Document A312 – 2010, Payment and Performance Bond

Many environmental service firms and contractors face the need for surety bonds.

After years of favorable conditions and stability, the surety market is tightening – so much so that many large and established remediation contractors are having difficulty maintaining the bonding capacity they need for growth, while many small businesses are having problems qualifying for their first or next bond. Even traditional construction projects can face difficulties simply because there may be a minor environmental component in the scope of work. Companies involved with a small percentage of environmental work (as low as 10 percent) are often labeled as “environmental risks” by the surety industry.

Smith Manus specializes in working with businesses required to bond contracts with an environmental component.

Subdivision bonds mandated by local municipalities require builders, developers, and land owners to make specific improvements to property being subdivided.

In the current economic climate, many sureties are avoiding these bonds. Smith Manus has developed unique relationships with our insurance company partners which allow us to create aggressive solutions for our clients. It is essential to make sure you work with a company who has a deep understanding of this industry. With three decades of experience, Smith Manus can help you get the bonding capacity you need for your development projects.

Improved Terms & Conditions. Strong Relationships with industry-leading sureties allow Smith Manus clients access to more favorable terms and conditions. Smith Manus only utilizes collateral when relative to a specific risk, not as a blanket underwriting requirement. This approach frees up valuable bank credit.

Flexibility. Smith Manus grows with your business. We can develop increased capacity to support expanded work programs, acquisitions and the overall growth of your company.

Personal Service. Smith Manus is continually working to improve and develop how we do business. We understand the needs of your industry and build long-term relationships with our clients.

Cutting-Edge Operational Software. By utilizing software specifically developed and updated to produce surety bonds, Smith Manus handles many complex accounts.

Industry Presence. Smith Manus maintains membership and actively participates in numerous industry specific professional associations