Call it a “necessary evil” or “the cost of doing business.” However you want to look at it, for most contractors, bonding is a fact of life. One way to keep your bonding capacity strong is to maintain a strong relationship with your surety. Here are five ways to do just that:
1. Communicate regularly and effectively. For starters, keep the lines of communication with your surety wide open at all times. Consider your surety agent part of your overall advisory team, just as you do your accountant and attorney.
To make sure your agent is always aware of what your company’s doing, send him or her regular financial reports as well as updates on your current project load. And even if nothing particularly earthshaking is going on, give him or her a call occasionally just to say hello. Sometimes a little goodwill can go a long way.
2. Keep your financials in order. Assuming you are sending your surety regular financial updates (and you should be), you need to make sure you’re providing the right information. Sureties tend to focus on equity and working capital. If you can demonstrate that you’re managing your cash flow, and that you have enough working capital to see you through any unforeseen problems, you’ll generally stay on a surety’s good side.
Sureties also look for evidence that you’ve managed to stay profitable over the long term. By nature, the construction business has highs and lows. So if you can consistently demonstrate a steady history of profitability, you’ll show your surety that you clearly know how to get through the lean times.
3. Carefully organize contract information. To ensure a construction company isn’t taking on an unacceptable amount of risk, a surety will sometimes want to review recently completed contracts as well as those in progress. Thus, you need to keep your contract documents complete and well organized in case your surety asks for them.
It also helps to augment your contract documents with background on your customers. For instance, if you’re seeking a surety bond for a private construction project, rather than a public one, the surety may want to know how the owner plans to pay for it. You may need to provide the source and amount of funding involved.
4. Maintain a sound business plan. A sound business plan that clearly indicates not only where you’re going, but how and why, can put (and keep) your surety at ease. When a construction company has a written, up-to-date plan, sureties think it’s less likely to go off on a risky tangent.
Similarly, a contingency plan that shows how you’ll deal with financial emergencies demonstrates your ability to remain cool under fire. Creating a disaster recovery plan that delineates your planned response for natural and manmade catastrophes is also a good move.
5. Document your company’s credentials. Your ownership and management profile may be another feather in your cap. A team of experienced managers and owners who have significant equity in the company is a sign of commitment that sureties appreciate.
In other words, don’t be afraid to blow your own horn. Write detailed bios on yourself and your top managers. And if you have a formal employee incentive program, provide your surety with detailed records of it to show off the accomplishments of your staff and work crews.
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