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/

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...

 

 

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...

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.

Lora Morrow, NAVFAC, Provides Insight on Government Contracting for Small Businesses

Tips for selling to NAVFAC. By Mike Sabellico, Business Consultant, Orange County SBDC

This month's edition of Contracting Central features the Naval Facilities Engineering Command (NAVFAC) and specifically their Deputy for Small Business, Lora Morrow. She has over twenty years of small business experience working for the Navy and has served in virtually every contracting position during that period. She has been in her current position for two years. NAVFAC is a global military Command with a Headquarters element and Component Commands that work together as one team providing facilities engineering, contingency engineering, and expeditionary support to the Navy, Marine Corps, Federal Agencies, and other Department of Defense Clients. NAVFAC provides Systems Command (SYSCOM) support to all Warfare and Provider Enterprises, serves as the lead SYSCOM for the Navy Expeditionary Combat Command, and provides warfighter support, including contingency engineering, expeditionary operations, sealift support programs, and ocean facilities. The local NAVFAC Command, NAVFAC Southwest, is located in San Diego and is one of ten facilities engineering commands in NAVFAC. The command is comprised of over 3,400 Federal employees (civil service, officers, and enlisted). NAVFAC Southwest is responsible for the public works, planning, engineering/design, construction, real estate, environmental services, and acquisition / disposal of facilities and real estate in a six state area on the West Coast. NAVFAC Southwest contracts with commercial businesses to produce and deliver construction for the military such as housing, piers, airfields and hospitals to name a few. The command also provides public works services such as transportation, maintenance, utilities/energy delivery, facilities management and base operations support to the Navy and Marine Corps Installations within its geographic area of responsibility as well as support to other federal agencies in California.   Most of these services are performed by ROICC & Public Works Teams composed of Seabees and Sailors with different levels of expertise in construction trades. Their annual operating budget is in excess of $3 billion in client work on the West Coast resulting in huge economic impacts for many communities. I recently spoke with Lora Morrow and asked her some questions regarding small business and NAVFAC. OCSBDC: How do you like working for the NAVFAC and how would you describe the current atmosphere for small businesses who want to work with the NAVFAC? Lora: I really enjoy working for NAVFAC. I believe strongly in our mission and work with a really great group of dedicated individuals. There is always something new to learn due to constantly changing regulations. The current atmosphere for small business is challenging due to recent budget constraints, but I don't think it's any easier for large businesses either. We were able to get a lot of work done in the past few years with stimulus funding and those funds are gone and our normal funding levels have been cut. We had about $4 billion in our executive portfolio for the last 3 to 4 years and the outlook for 2014 & 2015 is closer to $1Billion. OCSBDC: What is the best way for a small business to track upcoming opportunities for your agency? Lora: There are two avenues to track opportunities for NAVFAC Southwest: First as a prime contractor you need to monitor our website https://www.neco.navy.mil/ and also FedBizOps. On the FBO site look for our unit ID code N62473. I recommend not relying on the FBO email notification alone, get on the website and conduct active searches once or twice a month. The second way to look for opportunities to work with us is via a subcontracting role and you can find information about that on our website on the NAVFAC Southwest Small Business portal. OCSBDC: What is the best way for companies to market their products or services to the NAVFAC? Lora: First and foremost, they have to understand how NAVFAC works - do your homework! The best way for companies to learn about how we operate is to schedule a one-on-one meeting with myself or another Small Business Specialist or attend one of our various outreach events. You can always check with your local SBDC and find out what events we'll be attending or you can find the information on our website. Also make sure that you tailor your capability statement to the targeted customer. In a similar fashion to resumes, tailored capability statement are more likely to get you a call than a generic statement. OCSBDC: What are some of the common mistakes you've seen small businesses make when working with the NAVFAC? Lora: There are several mistakes that I've seen small businesses make over and over again. #1. Capability Statement - Make them succinct, eye catching, and tailored to the individual opportunity. #2. Don't drop in for a visit with the SB office or any technical POC. Everyone is busy and drop in appointments can't be supported. I feel awful when someone has driven down from Temecula and I have to tell them that I have no time for them today. Make an appointment and send your capability statement via email so I can have some feedback ready for you when you visit. #3. Not doing your homework - When I ask you what you sell or what service do you provide and you answer with whatever you need, I get the impression that you're not ready to work with NAVFAC. At matchmaking events never ask the agency or prime contact what they need or what they do...You want to make them your customer so do your homework and know those details in advance. #4 Performance - Once awarded the contract you NEED to perform on that contract. The worst thing a small business can do is to win a contract and then not be able to perform the work. The company will likely lose money on that contract and then it will be nearly impossible to get another contract. This may mean saying no to a larger opportunity that you're not ready to support. Winning a contract that the company is not ready to support can result in overextending the company and possibly watching it unravel. #5 Business Cards - Use the back and have all important information on the card. It may be worthwhile to have a card for commercial work and one for government work. On the Government card ensure you have the DUNS number and any federal certifications with their associated expiration dates. OCSBDC: Any last comments for our readers? Lora: Use the outstanding resources available to small businesses like the agency SBLO's and the Orange County SBDC consultants who have incredible experience and knowledge available to qualified small businesses at no cost! Last Word: Lora Morrow is an exceptional advocate of small business in a variety of facets and I want to thank her for taking the time to conduct this interview. We have several Orange County SBDC clients who have achieved incredible success both from a contract awarded and jobs created perspective working closely with Lora and supporting NAVFAC on a variety of projects.

City of Los Angeles Now Accepts WBENC Certification

WBENC-West partners with Mayor's Office of Contractor Relations.

Women's Business Enterprise Council - West has been approved as the WBE certification solution for the City of Los Angeles for WBE contracting. With City budget cuts, the Bureau of Contract Administration (BCA) has had to limit the businesses it certify to those in Los Angeles and still has a back log for WBE certification. With this new agreement, BCA will now accept the Women's Business Enterprise National Council (WBENC) certification as of March, 2013. WBEC-West, in partnership with Mayor's Office of Contractor Relations, has been working with the City of Los Angeles to ensure that women-owned firms have an equal opportunity to participate in City contracts. WBEs receiving WBENC certification will increase their opportunities of participating in contracting opportunities that are subject to the City's Business Inclusion Program where outreach is required. Additionally WBENC certification allows the City to accurately track and report on the number of women doing business with the City. The City of Los Angeles strongly encourages city agencies and prime contractors to contract with women-owned, minority-owned, and service-disabled veterans as well as with small and local businesses. According to Kecia M. Washington, the Executive Director of the Mayor's Office of Contractor Relations, "Inclusion is an economic imperative and we know that women owned businesses are part of the solution to our economic woes. Women owned businesses are talented, resourceful, and more than capable - we look forward to doing business with them." The BCA now accepts WBENC certified firms that are registered in the City of Los Angeles' Business Assistance Virtual Network (BAVN). Registration is done online through http://www.labavn.org/.

2013 TURNER SCHOOL OF CONSTRUCTION MANAGEMENT

PROGRAM BACKGROUND

The Turner School of Construction Management (TSCM) for Small, Minority, Women, and Disadvantaged Businesses is the oldest community outreach program in Turner’s history. Initiated in 1969, the program has since become an opportunity to develop strategic business relationships with M/W/S/DBE firms. Today, TSCM is offered in more than 30 of Turner’s offices nationwide.
 

THE TSCM ADVANTAGE

Attending the Turner School of Construction Management provides the following advantages:

Develop a relationship with Turner and learn how to do business with a larger contractor

Develop a relationship with the partners of Turner School

Enhance your managerial, technical and administrative expertise

Classes are offered free of charge

Learn how to make your company more visible to larger contractors in order to be more competitive

                Participants gain access to Turner’s Online University for additional courses

           Graduates receive a Certificate of Completion which can be sent to contractors to verify that you are a qualified subcontractor

 

2013 TSCM AT METRO HEADQUARTERS

This year, the Turner School of Construction Management is sponsored by METRO and Union Bank, in collaboration with Southern California Edison, Los Angeles Minority Business Development Agency, National Association of Minority Contractors, Los Angeles World Airports, Los Angeles City Bond Assistance Program and Southern California Minority Supplier Development Council.

 

METRO HEADQUARTERS

UNION STATION ROOM

ONE GATEWAY PLAZA

LOS ANGELES, CA 90012

7-WEEK PROGRAM

EVERY TUES & THURS*

APRIL 2** - MAY 17 2013

6:00 - 9:00 PM

*includes one Wednesday class

** Kick-off Reception at 4:30 pm in the Gateway conference room.

Parking available for $6

Please direct inquiries & email registration form to:

Turner Construction Company 555 South Flower Street, Suite 4220

Los Angeles, CA 90071 Tel 213.891.3171 Email: socal@tcco.com

SBA Announces Revisions to Surety Bond Guarantee Program

More small businesses will have access to larger contracts.

U. S. Small Business Administration (SBA) recently announced a major revision to their Surety Bond Guarantee (SBG) Program. The new provision more than triples the eligible contract amount from $2 million to $6.5 million that the Agency will guarantee on surety bonds for both public and private contracts. These new higher limits will help small business construction and service providers to have greater access to larger contracts. "These new contact ceilings are one more way we can help small businesses, particularly in the construction and service sectors, compete for and win critical contacting opportunities that help them grow their businesses and create jobs," SBA Administrator Karen Mills said. "Additionally, these changes, which are enthusiastically supported across the surety industry and small business community, will help spur economic growth and recovery in areas that have been hard hit by disasters, bringing jobs and economic activity to regions at a time when it is needed most."   The revisions are a result of the Fiscal 2013 National Defense Authorizations Act and are expected to increase surety bond agents and brokers and their surety companies to increase participation in the SBG Program. In addition, the changes increases the government contact value up to $10 million that SBA can guarantee if a contracting officer of a federal agency certifies that the guarantee is necessary for the small business to obtain bonding and if it is in the best interest of the government. SBA partners with the surety industry to help small businesses that are not able to obtain bonding in the commercial marketplace. Under the partnership, SBA provides a guarantee to the participating surety company of between 70 to 90 percent of the bond amount if the contractor was to default or fails to perform.

SBA Announces Change to WOSB Contracting Program

More opportunities for Women-Owned Small Businesses expected.

Women-owned small businesses will have greater access to federal contracting opportunities as a result of changes included in the National Defense Authorization Act of 2013 (NDAA). The changes are specific to the U. S. Small Business Administration's (SBA) Woman-Owned Small Business Federal Contracting Program. The legislation was signed by President Obama on January 3, 2013. NDAA removes "the set-aside caps" that have been in place since the program was launched two years ago. Prior to the enactment of this law, the contracts 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. In addition, the new law requires SBA to conduct another study to identify and report industries that are underrepresented by women-owned small businesses. As a result, it is expected that more eligible women-owned small businesses may be able to participate in SBA's Women's Federal Contract Program. To learn more about the program and determine if you qualify, visit www.sba.gov/wosb.

LAUSD to Conduct Small Business Boot Camp

Los Angeles Unified School District

SMALL BUSINESS BOOT CAMP

SEMINAR SCHEDULE FALL 2012

The Small Business Boot Camp seminars will begin September 12, 2012 and will take place every Wednesday (except September 26th) from 5:30 pm to 8:00 pm.

All seminars will be at the District Headquarters located at 333 S. Beaudry Ave., Los Angeles, CA 90017.

Course Seminars include:

Bonding & Certification

How to Develop a Safety Plan

LAUSD Contractor Prequalification

How to Bid on Informal and Formal Contracts

Public Contract Law

Access to Capital & Governing Tax Guidelines

Labor Compliance, Project Stabilization Agreement

& We Build Program

The Principles of Estimating & Scheduling

Mock Bidding

10-Hour Construction Safety and Health Outreach Program

You may register at www.laschools.org/sbe.

Contact Person: Ken Billups at 213.241.5204 or Kenneth.billups@lausd.net.

PROCUREMENT SERVICES DIVISION

SMALL BUSINESS ENTERPRISE PROGRAM