Introduction
Business Insurance Associates, Inc. offers professional surety support in establishing contract surety programs and handling individual bond requests. There are alot of misperceptions about contract surety and having a professional surety advisor is critical to establishing a surety line and obtaining contract surety bonds. The following documents are frequently included in surety submissions, although this list shouldn't take the place of a professional review and analysis.
Business Plan
Construction contractors should have a written business plan, that is reviewed semi-annually and updated as needed. This plan establishes the blueprint for business operations, and provides valuable insight into past history and future objectives of the company. A well written and detailed plan should be a key tool in planning throughout the year, and will assure the surety company that you are operating a professional business and have planning and evaluation controls in place.
Ownership Resume
A surety underwriter review will look at the ownership of a contracting firm, and attempt to determine their experience and level of expertise, the character of the ownership, the continuity plan for future solvency, their reputation and personal financial strength. Smaller to midsized contractors have little frequency or interaction with surety underwriters, depending upon the surety producer as their representative. As a relationship building exercise, the ownership should put together well written and professional resumes, in an effort to give the surety underwriter the opportunity to "know" the contractor a little better.
Contractor Questionnaire/Application
This application will vary from surety company to company, but most include similar types of questions about the business operations, management and principals involved. Aside from common statistical data, most applications will inquire about past job history and experience, current work schedules, and future plans.
Work in Progress Schedule
This schedule includes all projects in progress, bonded or unbonded, and offers supporting information of those projects, such as their percentage of completion, estimated profits and costs, and more. The totality of the work in progress schedule represents a contractors work backlog.
Reference Letters
Most contractor applications require a contractor to list several trade references that a surety may call to gather underwriting information on a contractor. As a matter of principal, contractors should request letters of recommendation from project owners, general contractors, architects & engineers for each project. This collection of letters can serve as a valuable testament to a contractors capabilities, experience and reputation, if included in a surety submission.
Continuity Plan
Contractors must have a business continuity plan in place, that outlines how the company will react to unexpected interuptions in business operations or change in the company ownership. This plan must address the intentions of the ownership should they become disabled and/or die, and explain how a company will be able to complete a project in absence of their presence. A continuity plan can be funded by life insurance with the business (or other partner) named as beneficiary through a buy-sell agreement. A continuity plan should also include plans for dealing with (1) material shortages, (2) labor shortages, and (3) financial shortages. The plan should be shared among all owners and key personnel involved, and ensure common understanding of implementation of the plan. Short of submitting a continuity plan in it's entirety, a contractor should at minimum submit a continuity statement that discusses the continuity plan. Aside from valuable planning protection, submission of a continuity plan or statement to the surety will display a professional image of a contractor concerned about risk management, business continuity, business perpetuation, and project completion.
Organizational Chart
Contractors will employees should submit an organization chart that outlines the management responsibilities of the ownership and key personnel. Resumes for key personnal that include detailed work experience, should be included with the organizational chart.
Business & Personal Financial Statements
Both corporate and personal ownership financial statements will need to be submitted as well. The best presentation is to provide fiscal year end CPA reviewed financial statements that includes notes and schedules. This level of financial assurance will produce the best surety results. Depending upon the size of the surety program sought, there are situations where inhouse financial statements or tax returns may be substituted instead. In addition, several programs for bonds of $ 200,000 or under do not require any business financial statements, instead relying upon the personal credit rating of the ownership.
Bank Reference Letter
Contractors should submit a bank reference letter that outlines their relationship with their bank, discusses average balance and high balance totals, and offers details on any lines of credit.
Certificate of Insurance
The contractor should submit a current certificate of insurance, to display to the surety that appropriate coverages are in place to deal with risk exposures.
Equipment/Tools Inventory List
Contractors should include a list that features owned equipment and tools, along with associated value. This list will give a surety some insight into a contractors operational capabilities and type of work performed.
Subcontractor Agreement
Contractors should submit their subcontractor agreement or at minimum, the insurance and surety requirements they employ when it comes to hiring subcontractors. A contractors subcontractor bonding policy should be included in this document.
Promotional Material, Advertisements, etc
If the contractor uses any promotional material or does any advertising, those items should be included in a surety submission package as well, affording the underwriter an opportunity to familiarize themselves with the products and services being offered by the contractor.
Surety Producer Cover Letter
The surety producer cover letter will summarize the submission package, highlight the strengths and weaknesses of a contractor, summarize the relationship they have with the contractor, and state an opinion with regards to their internal review.
