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Helping Contractors Grow:
Surety Bonding for New & Emerging Contractors

According to the U.S. Census Bureau, the value of construction put in place, excluding single-family residential construction, was about $715 billion in 2008. However, a contractor’s ability to secure some of that work, especially in the public sector, may be limited if he or she is unable to obtain a bid, performance, and payment bond. Fortunately, the surety industry is reaching out to new and emerging contractors to help them obtain their first bond, increase bonding capacity, and ultimately become better businesses. The ability to obtain surety bonds gives these contractors the support and resources they need to increase their contracting opportunities, compete for market share, and grow.

Surety Relationship

Most surety companies issue surety bonds through surety bond producers. The first step toward establishing surety capacity is to contact a professional surety bond producer who:

• Understands the intricate process of surety bonding and the unique underwriting standards and practices of the surety companies he or she represents;
• Matches the needs of the contractor with the surety company that is best suited to service those needs;
• Guides the contractor through the bonding process and assists in managing the contractor’s surety capacity;
• Creates and nurtures a successful relationship between the contractor and the surety company;
• Provides introduction to qualified accountants, bankers, and lawyers who understand the construction business;
• Is knowledgeable about the construction industry, accounting and finance procedures, and strategic planning and management practices; and
• Offers sound business advice, management consulting, and technical expertise to help the contractor maintain growth and profitability.

A list of professional surety bond producers is available through the Web site of the National Association of Surety Bond Producers (NASBP).

Prequalification Process

Before a contractor can obtain a bond, he or she undergoes an extensive prequalification process called underwriting to enable the surety to capture a clear picture of the company.

A surety company must be satisfied that the contractor runs a well-managed, profitable enterprise, keeps promises, deals fairly, and performs obligations in a timely manner. Underwriters use financial statements and business plans, among other factors, to help determine a contractor’s surety capacity. Other criteria include:

• Good references and reputation;
• The ability to meet current and future obligations; 
• Experience that matches the contract requirements;
• The necessary equipment and personnel to do the work or the ability to obtain it; and
• The financial strength to support the desired work program.

Programs for New & Emerging Contractors

The surety industry is steadfast in its commitment to help new and emerging contractors obtain their first bond and increase their bondability. Many surety companies have developed programs especially for these contractors.

Model Contractor Development Program

The Surety & Fidelity Association of America (SFAA) and its members work to ensure that bonds are available and accessible to qualified contractors through the Model Contractor Development Program (MCDP). SFAA launched the program, which is implemented by local surety associations, state and local governments, and other organizations nationally, to:

• Educate new and emerging contractors about surety bonds and assist them in becoming bondable;
• Identify resources available for obtaining a first bond through federal, state, and local programs;
• Provide assistance and referrals for obtaining appropriate accounting, project management, and financing expertise;
• Assist with increasing bond capacity; and
• Offer networking, outreach, advocacy, and policy development.

The program guides new and emerging contractors on what they need to do to qualify for surety bonds and provides resources - such as educational seminars - and access to expertise, including lenders, surety professionals, and accountants, to help these contractors develop stronger businesses.

The program also provides contractors with valuable assistance in the actual bonding process. In most instances, this is done through the establishment of peer review programs that team surety professionals with the contractors to review areas of potential bonding denial and identify factors that would make the contractor bondable. The team then develops a strategy to address the denial factors, including referring the contractor to specialized project management, accounting, or finance assistance, if needed. The surety professional then helps the contractor identify bonding for subsequent projects.

For more information about the Model Contractor Development Program, contact The Surety & Fidelity Association of America at (202) 463-0600 or visit the SFAA Web site. The Model Contractor Development Program is located in the Development and Diversity section.

Information & Education

Surety Information Office (SIO)

SIO’s resources are especially helpful to new and emerging contractors. CD and print materials include:

• How to Obtain Surety Bonds
• The Importance of Surety Bonds in Construction
• Surety Companies: What They Are and How to Find Out About Them
• Surety Bonds or Bank Letters of Credit
• Surety Bonds: A Guide for Contractors (CD)

Additional information is available on the SIO Web site. To order materials, visit SIO’s online store or contact SIO at (202) 686-7463 or sio@sio.org.

The Surety & Fidelity Association of America (SFAA)

SFAA offers many useful tools and education materials for new and emerging contractors including:

• Model Contractor Development Program
• Contractor Development Program Educational Modules
• Business Planning and Management for Construction
• Construction Accounting and Financial Management
• Banking and Financing for Contractors
• Bonding and Insurance for New and Emerging Contractors
• Marketing, Estimating, and Bidding
• Project Management and Field Operations
• Claims and Dispute Resolution
• Success Stories: Why Some Contractors Succeed and Others Fail

For more information, contact SFAA at (202) 463-0600 or visit the SFAA Web site.

National Association of Surety Bond Producers (NASBP).

To find a professional surety bond producer, go to the NASBP Web site. For more information, contact NASBP at (202) 686-3700 or info@nasbp.org.

Ongoing Programs at State and Local Levels

Small Business Development Centers (SBDCs) provide technical assistance to contractors in many locales. Similarly, local educational institutions may offer workshops and other educational opportunities to small businesses. To find out if programs are available in your area, contact your local surety association by visiting SIO’s online LSA Directory. To learn more about Small Business Development Centers, visit the Small Business Administration (SBA) Web site.

The Minority Business Development Agency (MBDA) is the only federal entity created specifically to foster the creation, growth, and expansion of minority-owned businesses in the United States. Through an agreement with The Surety & Fidelity Association of America (SFAA), the MBDA provides resources to minority-owned firms to enhance their access to bonding and educate them on how to become bondable or increase their bonding capacity. To learn more, visit the MBDA Web site.

Bonding Support Programs

Many federal, state, and local governments have developed or are developing bonding support programs for new and emerging contractors. Surety companies, SFAA, and local surety associations around the country have assisted with several programs that provide technical assistance, surety bonding, and working capital loan assistance services to new and emerging contractors.

For more information on possible bonding support programs in your area, visit the Development & Diversity section on the SFAA Web site or contact SFAA at (202) 463-0600.

Bond Guarantee Programs

SBA Surety Bond Guarantee Program

For more than 30 years, the U.S. Small Business Administration’s (SBA) Surety Bond Guarantee (SBG) program has helped small and emerging contractors who have the knowledge and skills necessary for success, but lack the combination of experience and financial strength to obtain bonds through regular commercial channels. SBA guarantees bid, performance, and payment bonds issued by surety companies to small and emerging contractors and reimburses the surety a percentage of loss if the contractor defaults. This government guarantee allows sureties to write bonds for contractors who would not otherwise meet their minimum standards - thus providing small and emerging contractors with contracting opportunities for which they would not otherwise qualify.

The SBA Office of Surety Guarantees (OSG) administers the SBG program as a partnership between the federal government and the surety industry. For more information on SBA programs, visit SBA’s Web site or call (202) 205-6540.

State Programs

Some states, including Florida, Louisiana, Mississippi, Ohio, and Tennessee, have established surety bond guarantee programs modeled after the SBA program. To learn whether surety bond guarantee programs are offered in your state, contact your local surety association.

Mentor-Protégé & Training Programs

AGC Stempel Program

The Stempel Plan is a mentor-protégé program implemented through Associated General Contractors of America (AGC) chapters nationally to build effective working relationships between leaders of mature established companies and new and emerging contractors. The mentor focuses on developing the protégé’s business plan and implementing actions necessary to help the protégé become a successful businessperson and contractor. Building on its origins with the AGC Oregon-Columbia Chapter’s work with the Port of Portland mentor program, the plan has since become a national model for several agencies and organizations. For more information, visit www.agc-oregon.org/.

Other Mentor-Protégé and Training Programs

Many states have established mentor-protégé programs to improve emerging contractor participation in transportation-related projects. Programs may provide opportunities for new and emerging contractors to hone their business skills through close work with established contractors. Some programs are designed to increase minority participation in state highway construction projects or transportation-related contracts. Other programs aim to elevate the volume of projects emerging contractors are capable of bidding on and profitably performing.

To learn whether mentor-protégé programs are offered in your state, contact your state Department of Transportation.

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For more information about surety bonding, please contact the: Surety Information Office 1828 L St. NW, Suite 720 Washington, DC 20036-5104 (202) 686-7463 | Fax (202) 686-3656 www.sio.org | sio@sio.org The Surety Information Office (SIO) is the information source on contract surety bonds in public and private construction. SIO offers brochures and CDs and can provide speakers, write articles, and answer questions on contract surety bonds. SIO is supported by The Surety & Fidelity Association of America (SFAA) and the National Association of Surety Bond Producers (NASBP). All materials may be accessed at www.sio.org.

The Surety & Fidelity Association of America 1101 Connecticut Avenue, NW, Suite 800 Washington, DC 20036 (202) 463-0600 | Fax (202) 463-0606 www.surety.org | information@surety.org The Surety & Fidelity Association of America (SFAA) is a District of Columbia non-profit corporation whose members are engaged in the business of suretyship worldwide. Member companies collectively write the majority of surety and fidelity bonds in the United States. SFAA is licensed as a rating or advisory organization in all states, as well as in the District of Columbia and Puerto Rico, and it has been designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience. SFAA represents its member companies in matters of common interest before various federal, state, and local government agencies.

National Association of Surety Bond Producers 1828 L St. NW, Suite 720 Washington, DC 20036-5104 (202) 686-3700 | Fax (202) 686-3656 www.nasbp.org | info@nasbp.org The National Association of Surety Bond Producers (NASBP) is the international organization of professional surety bond producers and brokers. NASBP represents more than 5,000 personnel who specialize in surety bonding; provide performance and payment bonds for the construction industry; and issue other types of surety bonds, such as license and permit bonds, for guaranteeing performance. NASBP’s mission is to strengthen professionalism, expertise, and innovation in surety and to advocate its use worldwide.