10 Things You Should Know About Surety Bonding

Reprinted from suretyinfo.org

Making the right choice to mitigate and manage risk on construction projects and selecting the most fiscally responsible option to ensure timely project completion are imperative to a successful project - and a sound business. Gambling on a contractor or subcontractor whose level of commitment is uncertain or who could become bankrupt halfway through the job can be an economically devastating decision. Surety bonds offer the optimal solution: providing financial security and construction assurance by assuring project owners that contractors are capable, in the surety’s opinion, of performing a construction contract and paying specified subcontractors, laborers, and material suppliers.

1. A surety bond is a three-party agreement where the surety company assures the obligee (owner) that the principal (contractor) will perform a contract. Surety bonds used in construction are called contract surety bonds.
2. There are three primary types of contract surety bonds. The bid bond assures that the bid has been submitted in good faith, that the contractor intends to enter the contract at the price bid and provide the required performance and payment bonds. The performance bond protects the owner from financial loss in the event that the contractor fails to perform the contract in accordance with its terms and conditions. The payment bond assures that the contractor will pay certain workers, subcontractors, and materials suppliers.
3. Most surety companies are subsidiaries or divisions of insurance companies, and both surety bonds and insurance policies are risk transfer mechanisms regulated by state insurance departments. However, insurance is designed to compensate the insured against unforeseen adverse events. The policy premium is actuarially determined based on aggregate premiums earned versus expected losses. Surety companies operate on a different business model. Surety is designed to prevent loss. The surety prequalifies the contractor based on financial strength and construction expertise. The bond is underwritten with little expectation of loss.
4. In 1984 Congress passed the Heard Act to protect federal projects from contractor default and protect subcontractors from nonpayment by contractors. The Heard Act was supplanted by the Miller Act in 1935, which basically requires performance and payment bonds in excess of $100,000 and payment protection for contracts between $30,000 and $100,000. A corporate surety company issuing these bonds must be listed as a qualified surety on the Treasury List. Also, almost all 50 states, the District of Columbia, Puerto Rico, and most local jurisdictions have enacted similar legislation requiring surety bonds on public works. These generally are referred to as “Little Miller Acts.” Owners of private construction also manage risk by requiring surety bonds.
5. Construction is a risky business. Of 1,424,124 contractors in business in 2007 only 969,937 were still in business in 2009 - a 31.9% failure rate. Surety bonds offer assurance that the contractor is capable of completing the contract on time, within budget, and according to specifications. Specifying bonds not only reduces the likelihood of default, but with a surety bond, the owner has the peace of mind that a sound risk transfer mechanism is in place. The burden of construction risk is shifted from the owner to the surety company.
6. Surety bond premiums vary from one surety to another, but can range from 0.5% to 2% of the contract amount, depending on the size, type, and duration of the project and the contractor. Typically, there is no charge for a bid bond if performance and payment bonds are required on the project. In many cases, the cost of a payment bond and a 12-month maintenance bond is included with the purchase of a performance bond.
7. The surety company’s rigorous prequalification of the contractor protects the project owner and offers assurance to the lender, architect, and everyone else involved with the project that the contractor is able to translate the project’s plans into a finished project. Surety companies and surety bond producers have been evaluating contractor and subcontractor performance for more than a century. Their expertise, experience, and objectivity in prequalifying contractors is one of a bond’s most valuable attributes. Before issuing a bond, the surety company must be fully satisfied that the contractor has, among other criteria:
   • good references and reputation;
   • the ability to meet current and future obligations;
   • experience matching the contract requirements;
   • the necessary equipment to do the work or the ability to obtain it;
   • the financial strength to support the desired work program;
   • an excellent credit history; and
   • an established bank relationship and line of credit.
8. Contractor default is an unfortunate, and sometimes unavoidable, circumstance. In the event of contractor failure, the owner must formally declare the contractor in default. The surety conducts an impartial investigation prior to settling any claim. This protects the contractor’s legal recourse in the event that the owner improperly declares the contractor in default. When there is a proper default, the surety’s options often are spelled out in the bond. These options may include the right to re-bid the job for completion, bring in a replacement contractor, provide financial and/or technical assistance to the existing contractor, or pay the penal sum of the bond. That owners have been shielded from risk is evidenced by the fact that surety companies have paid more than $10.1 billion due to contractor default since 1995, according to The Surety & Fidelity Association of America, Washington, DC. In 2009, the surety industry paid more than $84.4 million in losses on private construction and more than $1.6 billion since 1995.
9. When bonds are specified in the contract documents, it is the contractor’s responsibility to obtain them. The contractor generally includes the bond premium amount in the bid and the premium generally is payable upon execution of the bond. If the contract amount changes, the premium will be adjusted for the change in contract price. Contract surety bonds are a wise investment - providing qualified contractors and protecting public owners, private owners, and prime contractors from the potentially devastating expense of contractor and subcontractor default.
10. After analyzing the risks involved with a construction project, consider how surety bonds protect against those risks. Owners, lenders, taxpayers, contractors, and subcontractors are protected because:
    • The contractor has undergone a rigorous prequalification process and is judged capable of fulfilling the obligations of the contract;
    • Contractors are more likely to complete bonded projects than non-bonded projects since the surety company may require personal or corporate indemnity from the contractor;
    • Subcontractors have no need to file mechanics’ liens on private projects when a payment bond is in place;
    • Bonding capacity can help a contractor or subcontractor grow by increasing project opportunities and providing the benefits of assistance and advice of the surety bond producer and underwriter;
    • Surety companies may prevent default by offering technical, financial, or management assistance to a contractor; and
    • The surety company fulfills the contract in the event of contractor default.

For more information about bonding, visit Surety Information Office. 

Turner School Classes to Begin in LA

http://2014-tscm-session-one.eventbrite.com/

Director's Message

As the holidays season gets into full swing and another year draws to a close, it is nice to reflect on what we have learned throughout the year and what we hope to achieve in the year to come. When I think about 2013, the overwhelming sense I have is one of gratitude. I want to pause for a moment and give thanks to you, our loyal clients, corporate and community partners, friends, and colleagues for allowing us to work alongside you and to serve the small business community.

Looking ahead to 2014, as a leading small business resource in Southern California, we remain committed to small business success and will continue to expand our services and develop new offerings designed to assist small businesses connect to opportunities, and help them thrive.

It is our sincere hope that this holiday season will find you surrounded by the people that matter most and we wish you blessings, happiness, and prosperity.

Best wishes,

Leila Mozaffari

Director

Orange County SBDC

State of California • Department of Transportation

INFORMATIONAL NOTICE

___________________________________ _
CONSTRUCTION PRIME CONTRACTORS AND SMALL BUSINESS OWNERS ARE INVITED TO A
Mandatory Pre-Bid Meeting for Contract No. 12-OF96E4 A High Occupancy Vehicle (HOV) lane widening project on Interstate 5 in the cities of San Juan Capistrano, Dana Point and San Clemente, in Orange County, from 0.4 miles north of Camino de Estrella overcrossing, to 0.2 miles south of San Juan Creek Road undercrossing. Please click on the link for further information: http://www.dot.ca.gov/hq/esc/oe/weekly_ads/all_adv_projects.php

Attendance is MANDATORY for those interested in bidding.
Please note new date: Monday, October 7, 2013
1:30 pm to 3:30 pm 

Prudential Building

3333 Michelson Dr.

Ground Floor Auditorium

Irvine, CA 92612

(near Caltrans Headquarters)

 

 

This meeting is an important opportunity for Certified Small Businesses, Disabled Veteran Business Enterprises, and Disadvantaged Business Enterprises to network with prime contractors who plan to bid on this project. The meeting will present partnering opportunities for prime contractors and subcontractors and allow them to meet and develop relationships that enable successful bidding on this project and future projects. 





 

 

If you plan to attend, please RSVP:
Elizabeth Philippon, Caltrans District 12 Small Business Liaison
(949) 724-2021
Parking is available in Parking Garage #1, located to the north, behind the Prudential Building.
Cost for parking is $5 per hour, with a maximum of $20 per day.

Caltrans, Your Partner For Success

For information and to register...

Selling and Security Forum

 

 

 

 

Selling and Security Forum

Los Angeles, CA - Thursday, September 26, 2013

  

Panels and Face-to-Face Meetings with:

 

U.S. General Services Administration U.S. Department of Veterans Affairs U.S. Air Force U.S. Department Homeland Security Federal Aviation Administration CA Dept. of General Services Caltrans CA Dept. of Corrections City of Los Angeles City of Pasadena

LA World Airports Port of Long Beach Par Electrical Southern California Edison Symantec HP Northrop Grumman Lockheed Martin Dun & Bradstreet Credibility Corp. And Many More

 "250 area small businesses will have a remarkable opportunity to meet those who buy products and services for government agencies and major corporations and learn from the law enforcement experts how to avoid becoming a victim of Cybercrime...Don't miss this!"
  - Former Administrator, U.S. Small Business Administration

Start-ups, growing companies, and those already selling successfully will all benefit from this event. There will be procurement presentations by federal, state and local agencies, as well as Symantec, Dun and Bradstreet Credibility Corp, HP, Bank of America and other corporations.

• Government agencies and major corporations need every type of product and service.
• Cyber Crime is invading small business and you can protect your assets.
• There is new access to affordable capital.
• Women, minority and veteran owned firms have more opportunities than ever before.

None of us have time to waste. One day with these experts and your own networking can change the life of your business. These free events have resulted in over $9 billion in contracts granted to small businesses like yours.

  

Location:
Sheraton Universal Hotel
333 Universal Hollywood Drive
Universal City, CA 91608

Date: Thursday, September 26, 2013
Time: 8:30 a.m. - 4:00 p.m. (Check-in starting at 8:00 a.m.)

 

  

Registration and lunch are complimentary.

Registration:

1. Use this custom registration pass code to register your company: XKHSSD
2. Go to www.businessmatchmaking.com/workshopla.shtml
3. Click on the red "Registration" Tab

Please share this invitation with your colleagues and business associates.

If you have questions about this email or Business Matchmaking, please contact us by email at registration@businessmatchmaking.com.

OCTA 2013 Annual Business Expo - Save the Date

 

Register

U. S. Courthouse Los Angeles Small Business Outreach

 To register...

Corporate Diveristy Matchmaing - Save The Date

For additional information & to register, click here...

Do You Have Questions About the Affordable Care Act?

Here is a resource to answer your questions.

The White House has put out a web site link to answer questions for business owners on the Affordable Care Act. This will help you to understand your options. Here is the direct link for the government's business and healthcare website...

 

 

Learn more about the Turner School's upcoming training program.

Contact Connie May or Michelle Ballard

714.940.9000

Clark Strategic Partnership Program

Visit the Clark Construction web site to learn more...

CalCon Expo

CalCon Expo August 22, 2013 Long Beach Convention Center

To learn more or register, visit: CalCon 2013 Meet the Design-Build Primes Matchmaking August 21, 2013 To register, visit: CalCon Mathchmaking (Registration closes 8/9/2013)

CALTRANS Proposes 2014-2016 DBE Goals

Comment Period is open.

The California Department of Transportation (Caltrans) is seeking public input for proposed three year Disadvantaged Business Enterprise (DBE) goals for the period covering Federal Fiscal 2014 through 2016. As the recipient of funding from the Federal Transportation Administration (FTA), Caltrans is required to establish goals for the inclusion of DBEs. Caltrans has proposed a goal of 4 percent achieved exclusively through race-neutral means. This means that Caltrans expects to meet the goal without the use of DBE participation goals on individual projects. In the past, Caltrans has used various methods to achieve DBE goals. This includes business outreach to existing DBEs, technical assistance and training, improving the contract process, and data collection, monitoring, and reporting of DBEs. In addition to continuing to use the methods outlined above, Caltrans plans to: Expand the web site for easier access to information needed by SB and DBE firms and links to other supportive services, local agencies, and technical assistance; Establishing relationships with financial institutions, surety companies and insurance companies to market Caltrans opportunities in conjunction with SB and DBEs; Look for opportunities to package smaller contracts; Increase the number of certified DBE firms; The comment period is currently open. All comments should be e-mailed to michael.lange@dot.ca.gov or mailed to: Michael LangePO Box 942874 M.S. 39 Sacramento, CA 94274-0001 To read the methodology for the Triennial DBE Goal click here...

SBA Increases Size Standards for 70 Additional NAICS Sectors

More small businesses will have access to SBA's small business programs and government contracts.

The U. S, Small Business Administration (SBA) recently released the latest changes to small business size standards. Under the Small Business Jobs Act of 2010, SBA is conducting a comprehensive review of all size standards, a process that will continue for the next several years. In the lastest review, SBA has issued four final rules in the Federal Registry increasing size standards for firms in four North American Industry Classification System (NAICS) Sectors and one Subsector: Agriculture, Forestry, Fishing and Hunting (Sector 11) Finance an dInsurance (Sector 52) Management of Companies and Enterprises (Sector 55) Arts, Entertainment, and Recreations (Sector 71) Support Services for Mining (Subsector 213) Size standards define the maximum size a firm can be and still be considered a small business. The new size standards will enable more businesses to retain small business status allowing them to bid on more federal contracts and make them eligible for small business loans through the SBA loan programs and to receive technical assistance from SBA resource partners, such as the Orange County Small Business Development Center. SBA increased size standards for businesses in 11 industries in the Agriculture, Forestry, Fishing and Hunting Sector. More than 7,800 additional firms will qualify as small under these new size standards. SBA also increased size standards for 36 industries for firms in the Finance and Insurance Sector and two industries in the Management of Companies and Enterprises Sector. SBA changed the basis for measuring size from assets to annual revenues for the International Trade Financing industry and deleted the Real Estate Investment Trusts from its table of size standards. More than 7,400 additional businesses will qualify as small under the new size standards. . Size standards for 17 industries were also increased for firms in the Arts, Entertainment and Recreation Sector. More than 1,450 additional firms will qualify as small under these new size standards. SBA also increased size standards for three of the four industries for firms in the Support Activities for Mining Subsector within the Mining, Quarrying and Oil and Gas Extraction Sector (Sector 21). Subsector 213 is the only subsector within Sector 21 which has revenues-based size standards. The remaining industries within Sector 21 have employee-based size standards, which SBA will review in the near future. More than 475 additional firms will qualify as small under the new size standards. The four final rules will be effective July 22, 2013. To review the rules and public comments, go to visit.... Each sector has a separate RIN number: Agriculture, Forestry, Fishing and Hunting - (RIN 3245-AG43). Finance and Insurance & Management of Companies and Enterprises - (RIN 3245-AG45). Arts, Entertainment, and Recreation - (RIN 3245-AG36). Support Activities for Mining - (RIN 3245-AG44). The SBA is reviewing all size standards, and takes into account the structural characteristics of individual industries, including average firm size, the degree of competition, and federal government contracting trends. This ensures that small business size definitions reflect current economic conditions in those industries.

Useful Resource for Small Businesses

Small Business Exchange connects small businesses with contracting opportunities.

For over 29 years, Small Business Exchange Inc. has been connecting small, minority-, woman-, disadvantaged- and disabled veteran-owned, businesses with buyers of their goods and services. The Small Business Exchange recently ran an article in their newsletter that we published in last month's Contract Central on how to write a capabilities statement. Their web site and newsletters offers this type of helpful information for small businesses looking for contracting opportunities. It is also a resource for agencies and prime contractors that are looking for small businesses as sub-contractors. If you haven't visited their web site, take a minute to explore: http://www.sbeinc.com/index.cfm.

Is Your Capabilities Statement Sending The Right Message?

Here is a quick tutorial on how to prepare a Capabilities Statement.

A Capability Statement is a written summary highlighting your company’s overall experience, expertise, resources and specific services or products you provide. The Statement should tell your reader who you are, what you do and why a client should choose you. It should be customized for your target market in much the same way you would your resume. The Statement is a factual presentation of your company and should be one to two pages in length. Your capabilities statement should include: Your logo Address, name of primary contact, phone & fax numbers, and e-mail address NAICS codes Cage code ---- (Commercial and Government Entity code is a five-character ID number used extensively within the federal government. If you don’t have one, it is automatically assigned when you do your SAM.gov registration.) D&B number Certifications (Both certifications such as 8(a) or DBE, but also industry specific certifications such as ISO 9000 or other quality assurance certifications) Provide a business summary – It should be a paragraph that tells your reader who you are & what you do. Capabilities: Areas of expertise – type of work you can do for your client. Use short sentences or bullet statements. This should not be a long narrative about your capabilities or areas of expertise. Facilities and Equipment: -- List all facilities, equipment and resources used to manufacture the products or provide the service(s). Include unique qualifications, techniques and approaches used to perform work, including any state-of-the-art equipment or capabilities that are part of your business. Expertise: --- A brief summary of your expertise, as well as that of your key personnel/staff, highlighting their education and technical experience as it relates to your business. Customers: --- Provide a list of at least three or four of your key customers, past or present. Company names are sufficient. The Capabilities Statement should be on your business stationary and titled Capability Statement. Keep it simple, but tell the reader what makes you special and why they should choose to do business with you. This can be used as a stand-alone document to market your business, or attached to any pertinent literature you may already have. This along with a simple cover letter can introduce your company to any government agency or large business. Once you have your capabilities statement, you are ready to get out there and begin to develop relationships.

How Could the Passage of CA's AB 53 Impact Your Business?

Insurance companies first report is due by July 1, 2013.

Passed in the fall of 2012, AB 53, authored by former Assembly Member Jose Solorio of Orange County, requires CA insurance companies to report on their efforts to purchase goods and services from minority-owned, women-owned, and service disabled veteran-owned business enterprises. The bill mandates that every insurance company collecting over $100 million in premiums in California must report on its outreach efforts to diverse businesses and also designate a person as the point of contact for diverse suppliers that are interested in becoming a supplier to that insurance company. There are just over 200 insurance firms doing business in CA that are required to comply. As also mandated by the bill, the state insurance commissioner is required to establish and maintain a link on the Department of Insurance (DOI) website that provides public access to the contents of each insurer's report on their diversity procurement efforts. The first report from the insurance companies is due July 1, 2013 and the data will be posted on July 31, 2013 at http://www.insurance.ca.gov/. Although insurance companies purchase a myriad of products and services, it is expected that a large portion of the potential spend will be in the area of repairs (both auto and home), advertising and marketing, and computer services.

SBA Finalizes Rule Adopting Changes to Contracting Program for Women-Owned Small Business

Women-owned businesses will have greater access to federal contracts.

A press released issued by the U. S. Small Business Administration (SBA) announced that an interim final rule has been published in the Federal Register and is effective immediately. The rule will amend regulations to the SBA's Women-Owned Small Business Federal Contract Program allowing for greater access to federal contracting opportunities for women-owned businesses as a result of the National Defense Authorization Act of 2012 (NDAA) signed in January 2013. The interim rule removes the anticipated award price of the contract thresholds for women-owned small businesses (WOSB) and economically disadvantaged women-owned small business (EDWOSB) to allow them greater access to federal contracting opportunities without limitations to the size of the contract. The rule can be accessed at: http://www.gpo.gov/fdsys/pkg/FR-2013-05-07/html/2013-10841.htm. As a result of this rule change, contracting officers will be able to set aside specific contracts for certified WOSBs and EDWOSBs at any dollar level which will help the federal agencies achieve the existing statutory goal of 5% of federal contracting dollars being awarded to WOSBs. SBA is currently working on the changes to the Federal Acquisition Regulations (FAR). Prior to the rule change, the anticipated award price of the contract for women-owned and economically disadvantaged women-owned small businesses could not exceed $6.5 million for manufacturing contracts and $4 million for all other contracts. Any firm that wishes to participate in the WOSB program must meet the eligibility requirements and either self-certify or obtain third party certification. There are four approved third-party certifies that perform eligibility exams: El Paso Hispanic Chamber of Commerce, National Women Business Owners Corporation, U. S. Women's Chamber of Commerce, and the Women's Business Enterprise National Council. Additional information and links about approved third-party certifiers are available at www.sba.gov/wosb. To qualify as a WOSB, a firm must be at least 51% owned and controlled by one or more women, and primarily managed by one or more women. The women must be U. S. citizens and the firm must be considered small according to SBA size standards. To be deemed "economically disadvantaged," a firm's owners must meet specific financial requirements set forth in the program regulations. The WOSB Program identifies 83 four-digit North American Industry Classifications Systems (NAICS) codes where WOSBs are underrepresented or substantially underrepresented. Contracting officers may set aside contracts in these industries if the contract can be awarded at a fair and reasonable price and the contracting officer has a reasonable expectation that two or more WOSBs or EDWOSBs will submit offers for the contract.