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.

After much bantering back and forth over the past several months, we have decided to adjust our RISK-FREE offer for club membership. A new membership now has two types of guaranteed satisfaction.

You can sign up for a free 30 day trial membership OR take advantage of our three month or annual membership discounts complete with a 30 day money back guarantee.

Don’t wait too long to take advantage of this most generous offer. As soon as we strike our deal with a third party service provider who shall remain nameless, the $19.98 monthly full access price for new members will go away.

We will still offer a base rate of $19.98 but it no longer give new members access to our presentations and other advanced features.  Existing members will be grandfathered as long as they keep their account in good standing.

Act now and gain full access to all of our proven solutions for 30 days absolutely FREE. Click here to join.

We’re pleased to announce that the discussion board on our membership site is now active.

Members can introduce themselves, ask questions, seek opinions, and compare notes. We have created sections for each major business function to keep conversations focused and organized.  The board contains all the usual discussion board features with one notable exception: in this case only contractors committed to growing their business will be posting. That’s quite a change from most discussion boards.

If you’ve ever ventured over to a free discussion board, you’ve probably noticed the discussions often devolve into petty little cat fights. We will not allow that to happen on the club’s board.

Guy and I will be monitoring everything and clarifying suggestions that we believe violate sound business practice. That feature is missing from most forum dialogues.

Hope to see you participating on the forum.

Your friends and champions,

Ron & Guy

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.

Is one of your projects on hold due to funding problems?

If so, we may have found another funding source for the project’s developer. Pass the following onto them (via the General Contractor).

Carl Settles
NorthStar Funding Group
877-281-6660 (toll free)
909-996-6795 (direct)
909-474-8903 (fax)
nsfg@northstarfundinggroup.net
www.NorthStarFundingGroup.net

APPARENTLY NorthStar Funding will loan up to 90% of project value.

If the unstable bank situation is holding up one of your projects, give Carl a call to see whether your project may qualify.

If you are a subcontractor, copy and past this information into an email and send it the project’s General Contractor or CM. With the construction economy dragging as badly as it is, aggressive action is in your best interest.

If you’d like to discuss with me before calling Carl, drop me an email (ron@filthyrichcontractor.com) or call 913-961-1790. I’ll share what I know.

Be Forewarned: we are not vouching for Carl or NorthStar. We know nothing about the legitimacy.

Good luck,

Ron

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.

–

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

–
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.

–
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 are just a few days away from publishing our 2010 forecast for contractors. You will need to join The Private Club to read it however; their is a 30 day money back free policy when joining.

So you really have no risk to learn what we predict for the construction industry next year.  We are sure you will like The Private Club so browse around once you log in.

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.
—
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.

You know what separates the super productive sales professional from the run-of-the-mill, dime-a-dozen sales professional?

DRIVE

Pure, unadulterated drive.

An unquenchable thirst for more.

More money. More success. More fame.

Sales drive is every bit as important as sales skill. Maybe more so.

If you are responsible for generating business, you need to fabricate an unquenchable thirst for meeting new people, exploring networking opportunities, and staying connected to your solid gold prospects.

If you are looking for someone to generate business for you, pay heed to your candidates’ greed. When it comes to selling, greed is good. It reflects drive. And selling drive is rarer than selling skill.