A construction project owner usually requires its contractor to purchase a surety bond. The contractor might see that bond as a transactional formality, merely the last step before shovels can break ground. But that view can sell short the bonding process and the construction firm itself.
Insightful contractors take a more holistic view. They tap into a network of professional partners that enhance the company snapshot they present to the surety underwriter along with their bonding proposal. With that greater perspective, the surety company can more accurately assess the contractor’s prospects. The environment is more favorable for the contractor to secure the bond—and future ones.
That network strengthens, rather than limits, the independence that contractors value. As a surety underwriter, I admire the independence of construction business owners who started as a sole proprietor, acquired more and larger jobs, hired crews, established offices and then moved on to large jobs for which they needed subcontractors. Over time, they grew into a contracting company.
As they grow, they align with outside professionals. That network begins to serve informational and advisory roles, for the benefit and growth of the contractor.
Bringing that network forward during discussions about a bonded project can create value-added perspective for the surety underwriter to consider.
Who Should Be a Network Partner?
Essential business partners are experienced in construction, and they provide guidance and serve as a sounding board for the contractor. These typically are:
The surety bond producer can serve a dual role: He or she can serve on the network but also assist the contractor in identifying and assembling this team.
These professionals can help the surety company underwriter understand the contractor’s aspirations―and ultimately lead to a successful surety partnership.
And, yes, a surety firm itself can serve a role in the contractor’s network. When it comes time to bond a project, a prior relationship between a contractor and a surety company can provide a comfort level that, combined with other underwriting factors, can support a favorable response to a bond need.
Surety professionals refer to this holistic approach as “relationship-based surety bonding,” as distinct from transaction-based business in which only the project particulars are under consideration. The contractor who involves its support partners in the bonding process send a positive signal to the surety underwriter that their company is bringing value from their network to the table.
How Does a Contractor Know a Professional Is the Right Fit?
Contractors should choose business partners who understand and support their aspirations. Likewise, those business partners (including the surety bond producer and surety company) should have an aspiration to serve as a contractor’s trusted professional. This network can and should provide added value and information to assist the contractor’s success.
And these professionals also must have specialized construction knowledge. For example, a contractor needs an accountant with experience in construction financials, who understands work-in-progress and cost accounting. The contractor’s surety bond agent must have experience in the construction sector (e.g., multi-family housing, highway, etc.) in which the contractor specializes.
Similarly, it’s important for a contractor to use a banker who is experienced in construction. Some banks don’t like to lend to contractors and may view this type of loan as an accommodation to keep deposit accounts in place. If a bank doesn’t solicit construction risks, the bank might not be a good fit for a construction firm over the long term.
How Can a Contractor Find the Right Professionals?
Referrals are a common way to find a professional with which to work. Check out the bankers, certified public accountants, surety bond producers, attorneys and other professionals who are part of a discussion panel or education session at a construction networking event.
Search for nearby members of the Construction Financial Management Association, a local construction association and Associated Builders and Contractors. These entities host events where contractors can reach out to allied professionals. Also, most strong contract surety producers can recommend bankers, financial advisors, CPA firms and of course surety firms—partners that could add value.
If a contractor needs a surety agent, a reliable source is the National Association of Surety Bond Producers.
The contractor must evaluate whether a potential partner fits the needs, culture and aspirations of their construction company.
Pitfalls to Avoid
Sometimes contractors try to shoehorn professionals into spaces where they don’t fit. For example, a contractor might assume an attorney they meet at a residential real estate closing is experienced in construction contracts. If that isn’t the case, the contractor won’t realize optimum value from the attorney.
On the flip side, a contractor must take care not to shoehorn their own firm into a bad fit. When vetting potential partners, the contractor must keep their own needs and agenda top of mind. Professional partners should serve as sounding board but should not spearhead aspirations.
Another mistake in a professional network is for partners to assume that similar situations have similar issues and outcomes. It’s useful to listen to someone else’s experience, but it isn’t necessarily pertinent nor their advice appropriate.
To summarize, a contractor should use external partners as a base of broader knowledge and experience for making critical decisions. When the construction owner seeks perspective, and applies it to his own vision, he can make better informed decisions.
From a surety firm’s perspective, the contractor that follows this path instills confidence that that their company has a well-thought-out business strategy. That contractor is worthy of consideration.
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