The Basics of Bonding
&
The Contractor Development Program
Presented By:
– About Us
•
•
•
•
•
Full-Service Property & Casualty Insurance
Brokerage Firm
Dedicated Construction/OCIP Practice
Specialty Programs – SPARTA / Prompt Cover
Contractor Bonding & Technical Assistance Programs
Offices: San Francisco, Los Angeles, Oakland & San
Diego, San Bernardino, and Sacramento
The Bond Assistance Program
has successfully helped
contractors bid on over $760
Million in projects throughout
the State of California, of
which $216 Million has been
awarded to contractors.
In Southern California, the Program is supported by the following Public Agencies:
Why Do I Need a Surety Bond?
Surety Bonds are Mandated By Law on Public Works Projects
Federal
• “Heard Act” (1894) & “Miller Act”
(1935)
• Require performance & payment
bonds for public work contracts
over $100,000
State & Local
• “Little Miller Acts” (vary by state)
• Require performance & payment bonds
for on state and local public works
projects (amounts vary by entity)
The use of Surety Bonds makes it possible for government entities to use private
contractors for public construction projects under a competitive, sealed bid, open
competition system where the work is awarded to the lowest responsive bidder.
What is a Surety Bond?
A Three (3) Party Agreement that Guarantees a Contract:
CONTRACTOR
(Principal)
SURETY
OWNER
(Obligee)
The Surety provides assurance to the Project Owner (Obligee) that the
Contractor (Principal) is qualified, will perform a contract, and pay all
subcontractors and material suppliers, as stipulated in the contract.
What is Surety Bonding?
Three Party Agreement
◦Protects another party
◦You cannot buy it like Insurance
◦You must qualify for it
◦Unlike Insurance, no losses are
expected
Types of Surety Bonds
Components of Contract Surety Bonds:
◦ Bid Bond
Guarantees contractor will enter into contract at bid price,
if low bidder
Surety bonds
in construction
are referred
to as
“Contract”
surety bonds
◦ Performance Bond
Guarantee completion of the contract
◦ Payment Bond
Guarantees laborer, suppliers, and subcontractors will be paid
◦ Maintenance or Warranty Bond
Guarantees against defects in workmanship or materials for a stated time after
acceptance of work
What Surety Professionals Analyze
The Three C’s of Surety








CREDIT
CAPACITY
CHARACTER
Financial Strength
Ability to Perform
Reputation With:
Annual & interim financial
statements
Investment strategies
Cost control mechanisms
Work in progress
Cash flow
Net worth
Working capital
Bank & other credit relationships







Prior experience on similar
projects
Equipment
Personnel
Past, current, and future
workload (bonded & nonbonded)
Continuity plan
Organization
Management plan





Project Owners
Subcontractors
Vendors
Suppliers
Lenders
The Process of Obtaining Bonds
Step 1: Apply for Bonding Capacity
Obtain A Broker
Broker Sends
Submission to
Bond Markets
(Underwriting)
Gather Required
Documentation
Obtain Letter
of Bondability
Step 2: Bid on a Public Works Project
Identify
Bidding
Opportunity
Request a
Bid-Bond
from Broker
Submit Bid-Bond
along with Bid
Estimate to Owner
Bid Results
Received
Step 3: Submit Final Bonds to Start Job
Request Final Payment &
Performance Bonds from
Broker for this Job
Submit Payment & Performance
Bonds and Finalize Contract with
Owner (N.T.P. & N.O.A.)
Begin Work!
Cost of Surety Bonds
Bid Bond
No Charge
Performance Bond
½ - 3% of Contract
Price
Payment Bond
Price included with
Performance bond
Why is it Difficult for Small Contractors to Obtain Bonding
Capacity?
Surety Prequalification/Underwriting
Capacity to perform
Financial Strength
Track Record & History of Company
Organizational Structure
Business Continuation Plans
Trade References
Analysis of all Projects in Progress
Credit History
Good Character
Working Capital
Quality CPA Prepared Financial
Statements
Broker Representation
The Vicious Cycle
What Are the Benefits to Contractors of a
Bonding Assistance Program?
Establish their first bond or increase current
capacity
Enhance their ability to bid other public works
projects
Establish a track record of bonded work
Larger prime contractors can reduce their risk by
having small contractors “bond back”
How Does A Bond Assistance Program
Help Small Contractors?

Mitigate Exposure to the Surety/Finance Company
Bond & Loan Guarantees
 Third Party Funds Administration
 Contract Monitoring
 Pre-Claim / Default Problem Resolution


Better Prepare Contractor for Bond/Loan Underwriting





Consultative Services
Contractor Assessments (Pre-Qualify)
Referrals to qualified resources, broker, bank, CPA
Assistance/Subsidy towards CPA Prepared Financial Statements
Facilitate Collateral Support and/or Funds Administration as Needed
Example of how the Bond Assistance Program
Help Small Contractors
Contractor currently
has $250,000 in
available bond
capacity
The Program work’s with
the Contractor’s bonding
company to enhance the
Contractor’s available
bonding capacity
A job opportunity
arises and the
contractor’s bid
estimate is valued at
$350,000
Contractor is not
able to pursue this
opportunity due to
lack of adequate
bonding capacity
The program posts a
collateral guarantee on
behalf of the contractor
to increase their bonding
capacity from $250k to
$350k
Contractor now has the
adequate bonding
capacity to obtain the
bonds for this project and
pursue this opportunity!
How Does Contractor Development
Program Help Contractors?
Through Our Contractor Development Program, Contractors have access to
the following FREE Services:
• Program Enrollment & Assessment – Self
Assessment, Development Plan, Marketing
Profile
• Referrals to Resources, Brokers, Banks,
CPA’s,
• Accounting cost subsidy up to $3,200
towards CPA prepared Financial Statements
• Collateral Support for Bond Guarantees
up to 40% of the contract amount or
$250,000, whichever is less for awarded
City Projects
• Third Party Funds Administration
• Contract Monitoring & Field Support
• Education & Training
• Risk Management Services, including
Pre-Claim & Default Problem Resolution
• Access to Outreach information on upcoming
Bid Opportunities, Events, & Workshops
• Matchmaking with Prime Program
Partners - *based on Prime’s requests
and qualifications
How Does the Program assist Contractors to Maximize
their Contracting Potential and Grow their Business?
ENROLLMENT &
CONTRACTOR
ASSESSMENT
SELF-ASSESSMENT
•Complete a 1-Page
Enrollment Form
•Have a 1-On-1
Consultation with a
Surety Specialist
•Refer Contractor to
Broker to see if he/she
can qualify for Bonding
(if necessary)
•Indicates a rating on
where you are in
“Your” Business
•Indicates specific
needs you may have
•The Self-Assessment is
used to provide the
Contractor with
recommendations to
the resources in the
Development Plan
CONTRACTOR
DEVELOPMENT
PLAN
•Provides the
Contractor with
Resources based on
their individual
Business needs
•Short and Long Term
Goals are created and
given to the
Contractor
•Contractor meets with
their Surety Specialist
Quarterly to access
progress
CONTRACTOR
PROFILE
•FREE Marketing tool
to promote “Your”
Business to Large
Prime Contractors,
Public Agencies, &
other Peer Contractors
•Much more than a
Business Card
•Update for FREE as
your Company Grows
Who Are Our Target Contractors?
Aspiring Contractors
Entry Level Contractors
Experienced Contractors
Contractors Transitioning from Private and or Commercial
to the Public Sector
Prime and Subcontractors
“NO CONTRACTOR LEFT BEHIND”
Contractor Bonding, Technical Assistance
& Contractor Development Programs
City of Los Angeles (BAPLA)
 Bond guarantees up to 40% to a maximum of $250,000
(whichever is less)
 Accounting cost subsidy up to $3,200 for financial statements
 Funds Administration payment of fees 1% of contract price
 Training - individual counseling and group workshops on bonding,
financing and business management
 Program Events – Convene contractor program events in Council
Districts and participate in Proprietary Department events
Contractor Bonding, Technical Assistance
& Contractor Development Programs
Los Angeles Unified School District (LAUSD)
 Guarantees up to 40% of bond to a maximum of $400,000
 Loan Guarantees to banks up to 50% to a maximum of $200,000
on contract specific lines of credit
Contractors may utilize a combination of bond and finance
guarantees up to a maximum value of $400,000
 Funds Control fee paid
Contractor Bonding, Technical Assistance
& Contractor Development Programs
San Bernardino Community College District
 Guarantees up to 40% of bond to a maximum of
$400,000
 Training - Individual counseling and group workshops on
bonding, financing, business management, and more
 Matchmaking – Connecting awarded Primes to smaller
Subs
www.mwissbccd.webs.com
Contact Us
Merriwether & Williams Insurance Services, Inc.
523 West 6th Street, Suite 650, Los Angeles, CA 90014
Tel. (213) 258-3000  Fax (213) 258-3099  www.imwis.com
City of Los Angeles Program (BAPLA)
Malise Cross, Surety Specialist  (213) 258-3088  malise@imwis.com
Kristin Chang, Surety Specialist  (213) 258-3084  kristin@imwis.com
City of Los Angeles – LAWA Program
Rosa Osorio, Surety Specialist  (424) 646-7312  rosa@imwis.com
Los Angeles Unified School District Program (LAUSD)
Navid Barkhordar, Client Relations Manger (213) 258-3090  navid@imwis.com
San Bernardino Community College District (SBCCD)
Shanette Anderson, Program Manger (213) 258-3086  shanette@imwis.com