Surety Bond Capacity and the Federal Government Yearend

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