Industry News
Author, Andy Roberts, Surety Account Executive, Rancho Mesa Insurance Services, Inc.
In a recent special StudioOne™ Podcast episode, I’m joined by my three fellow board members of the Surety Association of San Diego as we explore some of the biggest challenges facing contractors in 2024 and beyond.
Author, Andy Roberts, Surety Account Executive, Rancho Mesa Insurance Services, Inc.
Retention is a very common practice within the construction industry that typically involves 5-10% of each payment to the subcontractor being withheld until the project has been completed. The purpose behind this is simple, it is designed to make sure that subcontractors satisfy their contractual agreements before they receive their last payment for the work they have done. While this practice serves a real purpose, it can cause significant issues for subcontractors if the payments are delayed.
Author, Lauren Stumpf, Marketing & Media Communications Specialist, Rancho Mesa Insurance Services, Inc.
In Episode 355 of Rancho Mesa’s StudioOne™ podcast, host Andy Roberts, an Account Executive in the Surety Group at Rancho Mesa, is joined by Ted Lee, a Contract Bond Underwriter at Liberty Mutual Surety, to discuss strategies for general contractors to limit their liability when working with subcontractors. Ted shares his background and experience in the surety industry before delving into the main topic.
Author, Andy Roberts, Account Executive, Rancho Mesa Insurance Services, Inc.
Obtaining bonding for public works projects can be a complex process but understanding what bonds are, why they are required, and what information the bond company needs can take a lot of the mystery out of the process and make it seem a lot less daunting.
Author, Andy Roberts, Account Executive, Rancho Mesa Insurance Services, Inc.
Like any great match-maker, a surety bond agent needs to fully understand both parties in order to match the contractor with the right bond company.
Author, Andy Roberts, Account Executive, Rancho Mesa Insurance Services, Inc.
Over the past two years, there has been a lot of talk about a looming recession. If a recession happens, its severity remains to be seen, but regardless, it is important for contractors to be taking an active approach in building their relationship with their bond company and utilizing the services of a surety specific agent.
Rancho Mesa's Account Executive of the Surety Department Andy Roberts is joined by Tina Jani, CPA and Partner at Covell, Jani & Pasch LLP, to discuss the Employee Retention Credit.
Author, Andy Roberts, Account Executive, Rancho Mesa Insurance Services, Inc.
In my previous article and podcast, “Surety Industry Forced to Innovate,” I discussed a few technological advancements within the surety industry and how the ultimate goal would be issuing bonds to obligees digitally. While that is still some ways off, the technology is here and there are companies and organizations already exploring how blockchain technology may be the answer when it comes to fully digitalizing the surety industry.
Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.
Rarely are the words surety and technology advancement synonymous, and that’s because it’s hard to introduce advancements to an industry where so many obligees still require raised seals and wet signatures on the bonds they are receiving. However, due to some challenges that bond companies, insurance agencies and obligees have faced during the pandemic, the industry is being forced to innovate.
Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.
With the passage of the Infrastructure Investment and Jobs Act, there is $125 billion of federal funds available for procurement. This provides a significant amount of federal construction work which will be put out to bid, with a vast majority of it requiring bonding.
Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.
As a contractor looking to qualify for a contract surety bond program, your team should be aware that company financial statements will be required by underwriters in most cases. This is largely due to the fact that a company’s financials, their balance sheet and an income statement, represent the primary source of information that a surety will use when building a bond program. And, the way this information is presented goes a long way in determining the amount of credit that a bond company is willing to extend. There are a few different options for presenting year-end financials, with the two most common being internal financials and CPA-reviewed financials.
Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.
In our current series of articles, we are taking a deeper look into the properties of a balance sheet that will affect a contractor’s bonding capacity. We have previously discussed bonding capacity and summarized working capital in regards to the impact it can have on a contractor’s capacity. However, another very important component on the balance sheet that surety underwriters will consider is net worth, also referred to as equity.
Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.
For contractors that do a lot of bonded work, their bonding capacity is a critical element of their business. Capacity often determines which projects a company can and cannot pursue, so it is managed very closely. However, for contractors that are new to bonding or have not bonded previously but remain interested in performing bonded work, this is likely a foreign concept to them. So, what is bonding capacity, and what items determine the amount of capacity that a surety carrier is willing to offer?
Author, Andy Roberts, Account Executive, Surety, Rancho Mesa Insurance Services, Inc.
As surety brokers, we initiate bond programs for our construction clients. Single and aggregate limits are determined in large part by their financials and experience. Often, there are jobs that exceed the single limit we have in place, or are larger than any job that our client has previously completed. When it is a job that makes sense for the contractor, it is our job to work with the bond company and find a solution so the contractor can bid the job or take on the contract. One available solutions is a process referred to as funds control.
Author, Andy Roberts, Account Executive, Surety Department, Rancho Mesa Insurance Services, Inc.
The COVID-19 pandemic will have many long and short term effects on the surety industry. While the long term effects might not be known for years, some short term changes are already occurring. Early on, we have witnessed bond companies start to tighten their underwriting guidelines, and now we are seeing an increase in General Contractors (GC) requiring performance and payment bonds from their subcontractors.
Author, Andy Roberts, Account Executive, Surety Department, Rancho Mesa Insurance Services, Inc.
Contractors often ask us what bond companies are looking for when they are reviewing balance sheets and income statements. The answer isn’t a simple one, because there are many items that underwriters look at when determining if they will write a bond for a contractor. Typically, the first thing an underwriter will do is calculate a contractor’s working capital.
Author, Andy Roberts, Account Executive, Surety Department, Rancho Mesa Insurance Services, Inc.
Before COVID-19, the construction industry had been enjoying one of the longest economic booms that this county has seen in recent memory. And, even though construction has been deemed essential, the industry is already seeing some effects from the pandemic, ranging from delayed material supplies, projects being shut down, and late or non-payments from project owners.
Author, Andy Roberts, Account Executive, Surety Division, Rancho Mesa Insurance Services, Inc.
The construction industry is currently booming. According to a survey conducted by the AGC of America, and a recent article written by Rancho Mesa’s Kevin Howard, the industry shows no signs of slowing down, as 80% of contractors predict growth in 2020. While that’s great news for the industry, we are starting to see some trends that can cause some issues for contractors.
Author, Andy Roberts, Account Executive, Surety Division, Rancho Mesa Insurance Services, Inc.
In California, when a contractor opts to organize their business as a Limited Liability Company (LLC) they are required to maintain an LLC Employee/Worker Bond in the amount of $100,000 in order to obtain their Contractors License, per the California Business and Professions Code, Section 7071.6.5. After our clients receive notice of this requirement, we are often asked why this bond is required and what does it protect against.
Author, Andy Roberts, Account Executive, Surety Division, Rancho Mesa Insurance Services, Inc.
When we have clients that are required to bond for the first time, often their first questions are what is a surety bond, how do they work, and why am I being required to provide one.
In its basic form, a surety bond is a three party agreement between the contractor, called the principal, the project owner, called the obligee, and the surety company. The surety company provides a financial guarantee to the obligee that the principal is both qualified and capable of performing the contracted job.
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