completing each task. A task is not
complete until all the parties involved
receive written confirmation. If it is
not in writing, it never happened.
Bonding companies never want to
be surprised. When serious problems
arise, the best contractors recognize
them when there is still time to impact
the outcome. They develop scenarios
for the most likely outcome, the
best case, and the worst case. This
information and the contractor’s
business plans for working through
the crisis should be presented to
the surety as early as possible.
The surety often can be a good
source of advice for dealing with
an issue. Bonding companies have
more experience with bad jobs than
anyone else. An important part of the
assessment for the surety is projecting
the impact of a fluke event or bad project
on the contractor’s financial statements.
Complete and open communication
is the best path to maintain a bonding
program through a crisis. The surety
must be confident that every stone has
been overturned, that all information
is on the table, and that the contractor’s
plans to work through the crisis are
reasonable. The pro forma financial
statements will be used to assess
how much bonding capacity will
be provided to the contractor, as
well as the terms and conditions.
The depth and quality of a contractor’s
surety relationship will be tested
during a crisis. Some sureties
Jon Lunderberg is a partner with Buiten & Associates
LLC. A construction specialist with 22 years of
experience in writing bonds and insurance for
contractors, he runs the firm’s construction practice.
Earlier, Lunderberg was a construction lender at
a money center bank and started his career doing
litigation consulting for contractors and owners.
He holds an MBA in finance from the University of
Michigan’s Ross School of Business and a bachelor’s
degree from Hope College. Lunderberg can be
reached at email@example.com.
might decide to cut their losses
and preclude the contractor from
bidding on work requiring bonds.
However, sureties that have a good
relationship with a contractor and
confidence in its management
team and their business plans will
underwrite the situation and provide
surety credit through the crisis.
Selecting a seasoned bond agent and
stable surety with which to build a
strong relationship during good years
will assist a contractor in weathering
through a crisis. Good bonding agents
can help contractors look around
corners to avoid problems, and they
anticipate a bonding company’s need
for information and understand how
it will react to good and bad news.
Bonding agents have unique skills that
include understanding construction
accounting, credit, and the people
who work in the industry. They need
to maintain excellent relationships
with their bonding companies and
earn the trust of contractors. Bond
agents are the conduits through which
contractors develop and maintain
bonding programs with sureties in
good times and tougher times.
Weathering the Storms
The best contractors strengthen their
balance sheets during good years
so they can weather downturns
and recoveries. They avoid bad jobs
and resist loading up their backlogs
with small-margin projects during a
recovery. They know their costs and
bid projects with an acceptable profit
margin. The construction market
will always be cyclical, but the best
contractors will proactively respond
with purpose and a solid plan, no
matter where they are in the cycle. J
through April 15.
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