10 Lessons Learned with Bonding

Providing a bond on a job seems simple enough. How hard could it be? Well, like most answers we get these days, it depends. I asked NSCA members about the difficulty in securing bonding and here’s what I found out. These are ranked from most to least common.

1. Many of our members wait too long to seek a bond for the first time; or, they wait until the week a bid is due to contact a bonding company. Don’t do that. Contact your bonding company the day you know you will bid on a bonded project.

2. Companies waste a ton of time starting an estimate on a bonded project only to find out after they do the take-off that the bonding company they used years ago won’t issue them a new bond. The mistake they make is not maintaining an ongoing relationship with a surety company.

3. Newer companies struggle to get a bond. The way things stand today, you can pretty much forget about securing a bond unless you have been in business for at least four years.

4. If you have or had any personal finance problems, bonding companies will know about it. They will check your personal credit score and run one for your business as well.

5. There are differences between construction bonds and other types of bonds. Be well informed before calling your surety agent. A hard lesson to learn is if your agent thinks you are requesting a construction bond when, in reality, you need a license or compliance bond.

6. Know what a “letter of bondability” is, but don’t assume your agent will issue you one. Remember, they make no money from these yet assume some risk in providing one. If you have a history of requesting rates on bonds yet seldom get one issued, they won’t be very eager to provide this service.

7. Some of our members have learned to use their “bondability” as a competitive edge. Promoting the fact that you can be bonded, and perhaps your competitors can’t, has served as a nice differentiation tool for some and a lesson for others.

8. Bonds are insurance policies issued by surety companies that believe you will perform your scope of work without any problems, delays or defaults. As such, they place a bet on your company that you know exactly what you are doing and that you will profit from that project. The lesson learned here is to communicate with your bonding company that you have a history of profitability and expertise within the scope of work.

9. If you are asked to provide a maintenance or warranty bond that goes beyond the length of the construction contract warranty, be very careful. This is getting to be a big risk for integrators. Essentially, you are buying an insurance policy that promises you will support the product if the manufacturer can’t. This could include software upgrades, patches, defects, etc. What if that manufacturer goes out of business? There is a risk and a price associated in protecting the “tail’ of an extended warranty bond.

10. A surety agent needs to know the relevancy of the potentially bonded project compared to your primary scope of services. If you have always done pro A/V and now are bidding on a large-scale security package, they may be more likely to rate it higher. They also want to see your company’s financial information and, yes, your personal financial status.

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