Most surety companies issue surety bonds through surety bond producers, commonly referred to as agents or brokers. The producer is an integral part of the surety relationship and should be considered a member of the contractor’s external advisory group – along with attorneys, CPAs, and bank officers.
Surety bonding is an intricate process, and each surety company has its own underwriting standards and practices. Business philosophies, market niche, and underwriting practices vary from company to company. The producer understands these differences, and can match the needs of the contractor with the surety company that is best suited to service those needs.
The Role of the Producer
By using their specialized knowledge of the construction industry, surety bond producers prepare the contractor for the surety company’s rigorous prequalification process, also referred to as underwriting. The role of the producer is to:
- Offer sound business advice, management consulting, and technical expertise to help the contractor maintain a profitable business.
- Review financial documents for submission to the surety company. The producer may analyze the financial statements to determine the contractor’s working capital, net worth, and current revenue.
- Match the contractor’s needs and strengths to the surety company best suited to meet the contractor’s needs, then nurture a successful relationship between the contractor and the surety company.
- Review completed contracts (typically from the past five years), current contracts, and proposed bids. This allows the producer to advise the contractor on the amount of risk he/she is taking on their total work program, and determine the profitability of that work.
- Recommend a responsible line of surety credit to help the contractor avoid overextending himself/herself.
- Guide the contractor through a formal presentation to the surety company and tailor the contractor’s submission to meet the surety company’s particular requirements.
- Maintain communication channels between the contractor and the surety company through periodic reports on work progress, financial performance, and business plans.
- Maintain communication with the contractor through site visits, social gatherings, industry meetings, and visits to the contractor’s office.
- Assist and advise the contractor on how to obtain or increase his/her bonding capacity.
Choosing a Professional Surety Bond Producer
Contractors should look for a producer who specializes in bonding for the construction industry. A surety bond producer should have the following qualities:
- A reputation for integrity and respect in the industry;
- Personal interest in the contractor’s success;
- Ability to build solid relationships with surety underwriters;
- An understanding of the construction industry and the construction management process including estimating, bidding, building and cost control systems, and an understanding of basic credit principles;
- Knowledge of accounting and finance, especially construction accounting procedures, ability to analyze financial statements, work-in-progress, and cash flow.
- Knowledge of construction, subcontracts, and contract law;
- Authority to issue bonds on the surety’s behalf (within limits);
- Awareness of local, regional, and national construction markets;
- Experience in strategic planning and management practices to promote successful contracting; and
- The best surety bond producers are a part of the construction community through active involvement in and support of local and national construction and surety industry associations such as the National Association of Surety Bond Producers (NASBP), Associated General Contractors of America (AGC), and Associated Builders and Contractors (ABC).
Contractors should choose a producer they can trust, and who has the integrity, expertise, and knowledge that will help their firm grow. The best source for professionals specializing in surety bonds is the
National Association of Surety Bond Producers (NASBP).