Failure Rates: 2002-2012
Building, heavy/highway, and specialty trade contractors
In Business
Survivors
Failure Rate
853,372 (2002)
610,357 (2004)
28.5%
850,029 (2004)
649,602 (2006)
23.6%
1,155,245 (2006)
919,848 (2008)
20.4%
897,602 (2009)
702,618 (2011)
21.7%
918,483 (2010)
696,441 (2012)
24.2%
Source: BizMiner
Prequalification
Financial
Strength
Character
Equipment
Credit
History
Banking
Relationships
Experience
Contractor Failure Risks
Low profit
margins
Slow
collections
Onerous
contracts
RISK
Unreasonable
owners
High
Materials
prices
Insufficient
Capital
Shortage of qualified,
skilled workers
Contractor Failure Risks
Inadequate
Management
Change in
Scope of
Work
New
Owner
RISK
Sub
Failure
Over
Expansion
Materials
Shortages
Inclement
Weather
Reasons for Contractor Failure
Accounting
Problems
Change in
Leadership
Scope of
Business
Unrealistic
Growth
Material/
Equipment
Shortages
Labor
Difficulties
Lack of
Experience
Failure
Accounting Issues

Inadequate cost tracking
systems

Estimating or procurement
problems

Underinsured

Improper accounting
practices
Management Issues

Leadership changes

No continuity plan when key
person dies or becomes
disabled
Personnel Issues

Key staff leave company

Character issues
Performance Issues

Unrealistic growth

Change in type or scope
of work

Poor project selection

Onerous owners

Unsettled claims &
change orders
Unrealistic Growth
Increase in
Backlog Work
Shorter
Lead Time
Unrealistic
Growth
Factors Beyond Control
Economic
Downturn
Weather
Delays
Labor
Difficulties
Inflation
Failure
Site
Conditions
Materials
Shortages
Ineffective Financial Management
System

Tight cash flow

Slow receivables

Past due bills

Vendors demanding cash
Bank Lines of Credit
Constantly Borrowed to Limit

All credit fully secured

Lines not renewed
Poor Project Management

Inadequate supervision

Not getting best prices

Projects behind schedule

Claims

Litigation
No Comprehensive
Business Plan

No contingency plans

No“road map”

No goals

No objectives
Poor Estimating & Job Cost
Reporting

Revenue & margins
decrease

Continued operating losses

Loss of bonding capacity

Bid jobs too low
Communication Problems

Disputes between contractor and owner

Poor communication from field to management
Loss of Loyal Customers

Decreasing reputation for
company’s ability to
perform contracts on
time & within budget
Tips for Contractors
to Avoid Default
Contractors

Rights & responsibilities

Capabilities

Growth & overhead

Causes & warning signs

Communication
Tips for Contractors
to Avoid Default
Contractors

Contract

Bond forms

Qualify surety

Qualify owner

Surety Relationship
Tips for Contractors
to Avoid Default
Contractors
• Construction-oriented
CPA
• Adjust overhead
• Bank credit
• Conserve capital
• Bond subcontractors
Claims
Expectations
Rights
Resolution
Completion
Obligations
Tips for Owners –
Navigating a Claim
Owners
• Understand bond
• Cooperate
• Comply with contract
• Don’t overpay
• Lien waivers
• Timely default
• Termination
For More Information
Surety Information Office (SIO)
www.sio.org | [email protected]
SIO is a joint initiative of The Surety & Fidelity Association of America (SFAA)
and National Association of Surety Bond Producers (NASBP).
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Why Do Contractors Fail? - The Surety & Fidelity Association of