The decision of whether to grow and expand is one that contractors face daily. Some of the many reasons why a contractor may decide to grow or expand include requests from key customers, access to additional capital, the addition of key personnel, market conditions, strategy or necessity. Growth and expansion can take many forms: larger contract price, more complicated or expansive scope, changes to the business plan, mergers and acquisitions, hiring of a new division or working in an unfamiliar geographic area.
With growth and expansion comes risk. Not properly identifying, managing and mitigating these risks can lead to troubles ranging from slight to severe, including financial losses, project defaults or even contractor failure.
A good surety partner will seek to understand. While big jumps in job size or other plans to expand can be red flags, a surety will always try its best to underwrite the contractor’s ability to understand and manage the inherent risks of growth and expansion.
In these scenarios, your surety will likely have additional questions and information needs centered on project specifics and the three Cs of surety: character, capacity and capital.
When you are looking to make a jump in job size, project scope or even location, your surety may ask the following:
Positive underwriting considerations can include:
Your surety will have already assessed character through meetings, references, credit reports and reputation in the industry. In order to evaluate the growth and expansion plans, the surety may also ask for the following:
Capacity is the assessment of the contractor’s ability to do the work. To evaluate the growth and expansion plans, the surety may also ask the following:
Due to the potential of higher risks and costs from mistakes made while in growth or expansion mode, your surety will likely treat this “C” as the most important. In addition to its standard underwriting, sureties may also ask for the following additional information:
Growth and expansion are essential aspects of a contractor’s long-term success. The surety has a vested interest in the contractor’s success and will always seek to gain comfort through its underwriting process. This process should lead to intelligent discussion and provide added value to a contractor in its own evaluations when executing on its growth and expansion plans.
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