c

1. Risk &
Responsibility
Understanding
Contract
Surety

2. Contract Surety Bonds
• Bid Bond
• Performance Bond
• Payment Bond

3. Contract Surety Bonds
• Bid Bond
• Performance Bond
• Payment Bond

4. Contract Surety Bonds
• Bid Bond
• Performance Bond
• Payment Bond

5. Who Requires Bonds?
• Public Sector
– Federal Government
– State & Local
Governments

6. Who Requires Bonds?
• Private Sector
– Private Owners
– Lending Institutions
– General Contractors

7. Principles
Of Contract Surety
Surety
Obligee
Principal

8. Prequalification
Financial
Strength
Character Experience
Equipment
Credit
History
Banking
Relationships

9. Prequalification
Capital
Capacity
Character

10. Prequalification
Capital
Financial
statements
Working capital
Work-in-progress
Indemnity

11. Prequalification
Capital
Financial
statements
Working capital
Work-in-progress
Indemnity
Capacity
Resumes
Contingency plan
Business plan-
short & long term
Equipment

12. Prequalification
Character
Reputation
Relationships
References
Capital
Financial
statements
Working capital
Work-in-progress
Indemnity
Capacity
Resumes
Contingency plan
Business plan-
short & long term
Equipment

13. Contractor Failure
Although
prequalification greatly
reduces the likelihood
of contractor default,
many things can cause
contractor failure.

14. Contractor Failure
Onerous
Contract Terms
Over
Expansion
Change in
Scope of Work
Subcontractor
Failure
Uncontrollable
Factors
Poor Accounting/
Financial Controls
Project
Management
Problems
Owner
Failure
Failure

15. Case in Point
“Surety
Involvement
Saves
Projects”

16. The Facts
• Old line family-owned
contracting company
• Company sold to 5 key
employees
• 16 projects in progress
• $20 million school with
cost overruns &
schedule delays

17. The Problems
• Default on 3 senior
citizen homes & 1 low
income community
rehab center
• Delays would hinder
substantial HUD
financing and tax
credits

18. What Happened
• Contractor over-
extended
• Re-work slowed
schedule
• Key subs not
bonded

19. The Surety’s Solution
• Hired a replacement contractor with
experience on HUD projects
• Assembled team to handle HUD,
federal, & state requirements
• Retained and paid subcontractors,
laborers & suppliers
• Financial help with schools

20. The Outcome
• Paperwork not delayed
• Work completed on time
• No loss of tax credits or financing
• Occupied in time to satisfy HUD
deadlines

21. The Outcome
Surety protected school district
and taxpayers from $1,865,753 loss
Premium paid for bonds:
$129,290

22. Benefits of Surety Bonds
• Qualified bidders
• Reduced risk of liens
• Timely project completion
• Defect protection
Owner

23. Benefits of Surety Bonds
Contractor
• Contract reviews
• Continuity plans
• Expertise
• Project qualification
• Private construction
• Lending institutions
• Subcontractor protection
• Technical, managerial,
financial assistance

24. For More Information
Surety Information Office
1828 L St. NW, Suite 720
Washington, DC 20036
202-686-7463 | Fax 202-686-3656
www.sio.org | sio@sio.org