It amazes me how many companies have no idea what their projects cost. The other day I was interviewing a seasoned concrete expert who has been in the industry for over twenty five years and he told a story about how the company he is working with now, is the first one to ever perform detailed job costing.

Up until working with his current company customer pricing was done by what the market would bear, square foot pricing and guessing. No wonder so many of the companies he has worked for are no longer in business.

Job Costing is actually an easy task that will provide a break-even number that guides you to where the selling price should be. It can be achieved in many ways, preferably with some automated software. An Excel spread sheet is a great place to start!

It easy fairly easy to achieve a “true cost” and determine a project break-even which is the starting point I recommend. Once you master that you can decide how exacting you want to be.

If you would like to have a discussion about your costing practices, no matter what stage you are in please feel free to give us a call.

Guy

I’m late getting the word out on this service. John Allen of the Fringe Benefit Group reached out to us in September to bring what turns out to be a great service to our attention. John even flew into town to meet in person to show me The Contractors Plan (www.TheContractorsPlan.com).

The Fringe Benefit Group offers a benefits plan for prevailing wage workers. Among other things their plan should help you reduce payroll burden, offer better medical benefits to your workers, simplify recordkeeping and administration, and most importantly keep you in compliance with the labor department, IRS, and state agencies.

If you happen to be a non-union contractor who does a significant volume of prevailing wage work you should reach out to John and get the low down on John’s service.  You can reach John at (512) 663-0709 or jalllen@fibi.com.

It’s the time of year again when contractors realize they have worked their butts off all year for little or no profit. How do I know this? The calls start rolling in.

Late December / early January the tire kickers come out in force calling about our coaching services. They tell us their tales of woe and politely, cautiously ask if we can help.  We can almost always help if they didn’t wait too late. Sometimes they have. Usually the caller just can’t bring himself to spend a few thousand dollars getting his business squared up.

I’ve never understood why contractors have such a hard time admitting to themselves they might need outside assistance with their business. Small business owners in almost every other industry reach out for help. There’s something in the hearts and minds of contractors that makes them hesitant to retain help. Why are they so resistant?

Professional coaching and consulting is almost always a small investment in light of the material, labor, and marketing costs their business suffers. The small investment observation is based on the assumption that a contractor doesn’t go with a consulting firm that is going to get into his pocket for $30K or $40K in a couple of months. There are a few of those consultants out there and they need to be avoided like the plague.

Most coaches and consultants are going to run between $7K and $20K for a year’s worth of hands-on assistance. Everyone of them, if they are remotely decent at helping contractors, will impact your bottom line by at least twice that much just with a couple of recommendations regarding the work you take, avoid, or successfully recover through a difficult change order. Everything else they help you with throughout the year will be gravy…yet highly valuable.

If you’re not happy with your bottom line and haven’t been for more than a couple of years it’s time to get help. Whether it is with us or another industry expert. Get help. Don’t keep rolling your thumbs while your business chokes to death on low profit and slow pay. Take action. Get help.

The following was penned by Danielle Rodabaugh of www.SuretyBonds.com.

New contractors have a plethora of regulations to learn about in a short time, and oftentimes they’re left to sort through them on their own. The use of surety bonds in the construction industry is one such regulation. There are many things every contractor should understand about surety bonds in the construction industry, but here are the five most crucial.

1) Government agencies require different surety bond types to protect consumer interests.

The basic idea behind contractor bonding is to protect project owners from financial loss due to a contractor’s inability to complete a project and/or follow industry regulations. Contract bond requirements help regulate the industry, reduce fraud and keep financially unstable contractors out of the market.

Although there are a number of specific surety bond types out there,  government agencies typically make use of three major ones when it comes to the construction industry.

• Bid bonds guarantee a contractor won’t increase the initial price of the bid submitted to the project owner. If a contractor should try to raise the price of the bid later on, then the project owner can make a claim on the bond.
• Payment bonds guarantee a contractor will pay for all materials and subcontractors used on a project. If a material or labor provider should remain unpaid after a project is completed, the business can make a claim on the bond to gain reparation.
• Performance bonds guarantee a certain quality of work will be completed. If a contractor should fail to meet a contract’s stipulations such as deadlines, then the project owner can make a claim on the bond to recover losses.

2) Contractor bonds should not be confused with insurance policies.

Although surety bonds are categorized as a type of insurance, contractors should understand that contract bonds and insurance policies are two entirely different products. The two are essentially different in that insurance policies generally protect policyholders (i.e. contractors) whereas surety bonds generally protect the bond’s obligee, which is typically the project owner. As noted earlier, though, payment bonds protect contractors who have been subcontracted by a prime contractor.

3) Contractor bonds act as legally binding contracts.

Each contractor bond that’s issued legally binds together three parties.

• A contractor purchases a surety bond as a guarantee that work on a project will be performed according to the project’s contract.
• An obligee requires a surety bond to protect the investments made in a project. A government agency such as a state’s contractor licensing board often acts as the bond’s obligee.
• A surety executes the bond by providing a financial guarantee of the contractor’s ability to complete work on the project.

4) Contractors undergo a thorough background check before they can get surety bonds.

Before contractors can purchase a surety bond, they must go through an application process. The exact process will vary depending on the surety provider, but it oftentimes includes a review of the applicant’s credit score and other financial records. Contractors with poor credit usually pay a significantly higher price for their bonds because sureties take a greater risk in backing the work of a financially unstable principal.

5) Contractors should look for the surety that will best serve their needs.

As with any major purchase, the decision to buy a surety bond should be carefully researched. Contractors should always verify the reputation of any surety provider they plan to work with. The agency should be able to explain all material clearly while also being well-versed in local, state and national market conditions, as laws and regulations change frequently. Experienced surety specialists have a thorough knowledge of the industry and also provide great service to their clients.

This article was provided by SuretyBonds.com, a nationwide surety bond producer that aims to help contractors understand the legal aspects of surety bonds and the bonding process.

You can reach Danielle at darodabaught@suretybonds.com.

Reality is that contractors, like the rest of us, desire to pay the least amount of taxes possible.

Unfortunately many contractors are putting forth a last minute push to get every possible project completed as possible. The threat of winter creeping in cold climate markets increase the pressure.

We often realize contractors forget to prioritize important stuff. That is why we are reminding you the time to plan on how to minimize your tax liabilities for 2010 is now. We encourage you to set an appointment with your accountant now and start bringing the data together on what type of profit you anticipate having this year.

This type of approach allows you to purchase equipment, prepay future liabilities and brain storm on how you will minimize your tax exposure.

Even if you think you are losing money in your business and feel you will have no tax liability we want you to consult with your tax expert. This way you can prevent any surprises that you can not do anything about.

We hope you are making wheel barrows full of dough. If you aren’t making the type of profit you want and would like some advice on to become highly profitable feel free to call us for help.

Happy Planning,

Ron and Guy

In our last post on Construction Bonds, we’ll take a look at three other common risk-mitigation tools: Site Improvement Bonds, Subdivision Bonds and Supply Bonds. The first two are key components for residential and commercial construction projects. But there is one distinct difference. The Site Improvement Bond is only for existing structures. Subdivision Bonds are required for new structures. Let’s start with Site Improvement Bonds.

Site Improvement Bonds

These basically guarantee that a contractor follows applicable building codes and regulations when making improvements to an existing property. Site Improvement Bonds can cover an array of fixes and improvements, including things like sidewalk repair, storm drains, curbs and sewers. The bond will usually state the anticipated cost and duration of the project. On many projects, these bonds must be in hand before a contractor can get a construction permit or record a final parcel map.

Subdivision Bonds

These are for contractors building new subdivisions. The Subdivision Bond helps ensure that a project will be built according to contract and applicable laws and regulations. They cover most elements related to the construction project, including houses, gutters and streets. Contractors typically need these to file plats with a municipality before the project’s completion.

Supply Bonds

The Supply Bond is pretty straightforward. In essence, they ensure that supplies will be provided as per the contract. They also provide a degree of financial protection in the unlikely event that a supplier defaults. These bonds are often purchased during the beginning stages of contracting, in advance of the start of work.

The Market for These Bonds

The market for both Site Improvement Bonds and Subdivision Bonds has fluctuated in recent years. Housing developments have stalled or collapsed because of economic peril and a depressed housing market. The amount of the bond will change depending on the project. Bond premiums will shift based on that as well as on the financial and work history of the contractor. Underwriting for these bonds remains tight. Supply Bonds aren’t typically as costly as other Construction Bonds. But, like any other bond product, the final cost will depend on several factors, especially the applicant’s financial health and history.

The contract bonds series was brought to you by Surety Bond Co. , leaders in surety bond education.

As our series on Construction Bonds draws closer to the end, we’re going to take a look at two big ones — payment and performance bonds.

These are very significant and similar bonds. And are also among the most common construction bonds in existence. In fact, contractors will often see these bonds issued together as one “Performance and Payment Bond.” Their individual and collective function isn’t much of a mystery.

What They Provide

A performance bond ensure that a contract will be followed to the letter and that work will be completed — or that appropriate financial compensation will follow if the wheels fall off. A payment bond guarantee that workers, suppliers and other key stakeholders get paid.

These bonds are crucial for most construction projects, especially those that involve public tax dollars. For example, mechanics liens can’t be placed against public property, so payment bonds are basically the only protection available. These key bonds are actually required by law for most public works projects, including all federal projects that cost more than $100,000.

Filing Bond Claims

If a subcontractor or other party hasn’t been paid, they can file a claim on the bond. If it’s deemed valid, the surety company issuing the bond ensures the claimant is properly compensated, either by the contractor or, at last resort, the surety itself. Then the surety company will seek to recoup the damages from the contractor.

Purchasing These Bonds

Performance and Payment Bonds are typically purchased during the period of contract negotiation for the project. Surety companies and surety bond issuers scrutinize an applicant’s financial history, company and work history, management team and other key factors before deciding whether to issue a bond.

Rates for these bonds shift depending on an applicant’s unique financial and credit status. The market has leveled off a bit in recent years, but contractors should expect a stringent, straightforward underwriting approach.

Contractors without solid credit or significant experience may wind up needing high-risk bonding. There are companies that specialize in these types of bonds, although the rates are definitely higher because of the added risk.

This guest post was written by Kevin Kaiser of SuretyBonds.com.

by Kevin Kaiser

Maintenance Bonds are another key cog in the world of Contract Bonds.

They’re also an essential, typically mandatory method of risk management for project owners, municipalities and others.

How They Work

These surety bonds come into play upon the completion of a construction project or some other job requiring legitimate bonding. Maintenance Bonds guarantee that the work performed is up to code, follows the contract and is otherwise without defect or problem. These bonds generally provide protection for project owners against design defects, workmanship faults and other problems that can occur during the construction term.

Project owners, governmental authorities and others with a financial stake can file a claim against the Maintenance Bond in the unlikely event that there’s a problem. At that point, the company that issued the surety bond is responsible for ensuring the issues are corrected or the parties are financially compensated.

A Short-Term Solution

Project owners need to remember that a maintenance bond is a short-term solution. They are only effective for a limited time to cover any problems that may stem from faulty work. Once they expire, any problems or defects are the responsibility of the owner. These are not a substitute for insurance or some other type of property or site maintenance plan.

How to get a Maintenance Bond

Getting a maintenance bond is very similar to getting a bid bond. In case you missed that post here’s a little refresher.

It very is beneficial to find a agent who specializes in construction bonds as they will be able to help streamline the process for you. You will also be expected to give the same information required of bid bonds, including the application, owner’s resume, business financial statements, and the owner’s personal financial statements. The contractor will also have to sign an indemnity agreement so the surety won’t have to worry about financial loss, so any claims from the bond will eventually be repaid by the contractor.

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The contract bonds series is courtesy of SuretyBonds.com, a nationwide surety bond agency.

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Kevin Kaiser is a principal with Surety Bonds.com, a nationwide surety bond agency.  Please visit surety bonds to learn more about contract bonds or request a quote.

Bid Bonds have become a necessity in the construction field. Not that long ago, unscrupulous contractors could issue low-ball bids to land a contract and then later try to increase the price or simply refuse to finish the job. The emergence of Bid Bonds eliminated those types of shady deals. Today, Bid Bonds are a mandatory aspect of almost all commercial and residential construction.

What they are
Bid Bonds are typically required when a contractor is bidding on a construction project. These surety bonds guarantee that the contractor has the financial standing to accept the job if it is awarded the bid. The Bid Bond also ensures that the bond issuer will make good on a Performance Bond upon the awarding of the contract.

Bid Bonds also provide financial protection for project owners. If a contractor is awarded a bid but ultimately fails to start the work, the project owner can file a bond claim and recover the difference between the lowest bid and the second-lowest bid.

Withdrawing a bid
In general, contractors are allowed to withdraw a project bid before the bids are officially opened. There are also cases where developers allow bids to be rescinded without financial penalty. But in most cases, once the process is complete and the project has been awarded, contractors who bit off more than they could chew will have to take a financial hit for withdrawal.

How to get a Bid Bond
These bonds are typically issued by surety companies or insurers. Finding an agent who specializes in construction bonds is always a good idea. Contractors will have to submit a host of financial and even personal information in order to secure a valid bond.

The underwriting process for  bid bonds is stricter today after a wave of contractor defaults in recent years. Previously, the market relied on looser practices. Now, contractors can expect to submit the following types of information:

• Application – Includes basic contact information.
• Owner’s Resume – Provides an overview of the contractor’s experience and potential ability to complete the project.
• Business Financial Statements – These will include tax records, revenue statements and a host of other pertinent financial documents so that sureties can have confidence in the financial standing of the applicant.
• Owner’s Personal Financial Statements – Sureties will also evaluate the personal holdings, credit history, income and other financial elements of the applicant.

In most cases, contractors must sign an indemnity agreement that insulates the surety against financial loss. Any bond claims paid out by the surety will ultimately be recouped from the contractor. Surety companies utilize a rigorous underwriting system to ensure they’re not on the hook for losses.

Small Businesses
The U.S. Small Business Administration provides a surety program for small businesses. Through September 2010, the SBA is guaranteeing bonds for public and private contracts up to $5 million. The guarantee rises to $10 million for some qualified federal contracts. This program aims to help smaller contractors who might otherwise struggle to get bonded through traditional channels.

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Kevin Kaiser is a principal with Surety Bonds.com, a nationwide surety bond agency.  Please visit surety bonds to learn more about contract bonds or request a quote.

We have a guest blogger.

Kevin Kaiser is a principal with Surety Bonds.com. He graciously offered to share his insights about bonding with our community. We hope you find his series on bonds to be helpful. Without further ado, here’s Kevin’s introduction to contract bonds.

Contract Bonds

Contract Bonds, often called Construction Bonds, are common financing and risk-mitigation tools utilized across the country. They’re a part of construction projects big and small, from city libraries and sewer plants to residential structures and hospitals.

In all, there are seven major types of contract bonds — there isn’t a single “contract bond” that can be issued. These seven forms cover a host of needs and provide financial protection for project owners. In short, contract bonds are basically three-party agreements that guarantee a project’s completion and provide an avenue for financial compensation in the event of default or some other problem.

How do they work?
These three parties are the principal, who performs the work; the obligee, the receiver of the work; and the surety, the third party guaranteeing that contracts are followed. For example, contractors must obtain payment bonds on public works projects guaranteeing that workers and subcontracts get paid according to their contract. If the contractor fails to pay or defaults, the payment bond ensures workers get paid — and that the project owner, the obligee, is protected against any financial harm.

Contract bonds are required on all federal projects valued at $100,000 or more. But state and municipal agencies also typically require contract bonds for public works projects. Even private developers and enterprise may require these standard surety bonds.

How are they issued?
Insurance companies and standalone surety bond firms are the most common issuers of surety bonds. These operations employ strict underwriting procedures, as surety companies do not want to be on the hook if a company defaults halfway through a project. Contractors will engage in a formal application process, which typically includes information such as:
-Credit profile
-Business financial statements
-Resumes for managerial team
-Personal financial statements
-Personal credit profiles

What do they cost?
The cost of contract bonds varies, often depending on the individual applicant, project and surety. They typically cost anywhere from 1 to 15 percent of the contract amount. Rates fluctuate depending on the nature and complexity of the contract and the financial standing of the applicant. Applicants with less than stellar credit or financial profile may be able to secure bonding from high-risk issuers, but those rates will be higher.

What’s next?
Over the course of the next few weeks, we’ll provide a snapshot of each of the seven major contract bonds. Next time, we’ll discuss Bid Bonds.
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Kevin Kaiser is a principal with Surety Bonds.com, a nationwide surety bond agency. Please visit www.suretybonds.com to learn more about contract bonds or request a quote.