The Role of Surety Amidst Expanding Construction Backlogs

A positive surety relationship is built on trust, transparency, and shared values. As an unsecured creditor, a surety expects and underwrites to a 0% loss ratio; however, sureties can only succeed when you, as the contractor, succeed. First and foremost, sureties and their agents do not charge any fees or premiums unless they execute and issue a bond; therefore, they cannot earn revenue unless their contractor clients are successful in securing bonded projects. Second, since bonds guarantee both completion of a project and payment of 1^st and 2^nd tier vendors, sureties also need their contractors to succeed operationally, execute the work, and successfully complete their bonded contracts. As a result, a surety’s interests are almost always aligned with their contractor clients, and the role of the Surety is to figure out ways to provide support.

What can contractors do to enhance it’s surety relationship during times of increasing backlogs? Communication is key! While it is always positive to keep your surety and bonding agents up to speed, the importance of communication during periods of increased backlogs can provide added value to a contractor’s business plan. Sureties understand that growth and expansion can add risk. As a result, they will want to understand how a contractor plans to mitigate its project, financial, operational, and human capital risks, as well as how it plans to successfully execute the work.