How Secure is your Building Contractor?

Construction is a Complicated Business

The conditions always change – different clients, different materials, dealing with workers, subcontractors and vendors and a myriad of different governmental agencies each doing the push-me, pull-me with incomprehensible mountains of paperwork and requirements.

Pole Barn ContractorContractor High failure rate

Those who are not prepared or capable of meeting these demands may ultimately fail. Even in the two years prior to the Great Recession, over 20% of all construction businesses failed.

Every year thousands of contractors, whether in business for 20 weeks or 20 years, face business failure and bankruptcy. These failures leave behind unfinished construction projects and billions of dollars in losses to project owners and taxpayers.

What can you do for some assurance of completion?                                                          

The risk of contractor failure can be mitigated by requiring bid, performance, and payment bonds. Surety bonds provide financial security and construction assurance to project owners by verifying contractors are capable of performing the work and will pay subcontractors, laborers, and material suppliers.

What does a Surety Company do?

Surety companies are well-positioned to analyze and manage construction risks because of their close relationships with contractors and surety bond producers. The surety bond producer works with contractors to prepare the necessary documentation for the rigorous pre-qualification process conducted by the surety company. Through the pre-qualification process, the surety verifies the contractor’s ability to perform the contract and fulfill its financial obligations (taking into account the contractor’s current and projected commitments).

Surety Bonds good investment

Pre-qualification is an in-depth process, which includes a complete review of financial statements, capacity to perform, organizational structure, management, trade references, credit history, and banking relationships. Before a surety company will issue a surety bond, it must be satisfied the contractor runs a well-managed, profitable enterprise, deals fairly, and performs obligations as agreed.

Because preventing contractor default is a key component to the surety business, surety companies and surety bond producers are experts at spotting business practices and conditions which can lead to contractor failure.

Before hiring a contractor to build a new pole building – have them get bonded for the value of the contract. Usually such bonding is not expensive.  As a building owner, the offer to add to the contract the cost of the bond would be seen as a favorable step.

If a contractor is unwilling to apply for bonding, or unable to acquire it – these are warning flags which say, “RUN! Do not walk” to another contractor.

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