Upgrade FastBond for Your Contractor Buyers to a Standard Bond Program

This post is part of a series sponsored by Old Republic Surety.

Your contractor clients today have many opportunities to work on high-value projects in both the public and private sectors. According to the industry outlook report of the Associated General Contractors of America, in 2024, contractors expect the demand for construction projects in 14 of the 17 sectors surveyed to increase by 2024. Some of the sectors with the greatest expected growth include sewage and water. , highway and bridge, government projects, power projects and healthcare facilities.

This is a good time for you and your contractor clients to discuss actions and strategies that can help them qualify for bond enhancements.

Many small or new business contractors obtain bonds for small projects through abbreviated underwriting programs such as Old Republic Surety Company’s FastBond program to obtain the bonds required for those contracts. FastBond streamlines the underwriting process, is primarily credit-based, and does not require the level of financial or other knowledge required to qualify for a standard bond program for major contracts.

Reasons to improve the strength of the contractor’s bond

Let’s take a look at why your contractor clients should consider moving from a FastBond type program to a traditional contract bond program and how they can do so.

• The contractor wants to grow and increase profits Converting to a standard bond system opens up opportunities for larger and more diverse contracts. Competition is limited for many large contracts, which helps increase the potential for profit growth.
• The cost of the bond itself. FastBond programs are designed for contractors with periodic bond needs, and FastBonds are typically charged at higher rates. Old Republic Surety writes FastBonds that can go up to $2 million aggregate, typically at a rate of $20 to $30/thousand. Standard program rates are low, allowing the contractor to offer competitive bids and potentially earn better margins on their work.

5 steps to switch from a FastBond program to a standard program

Standard bond programs require complex financial information and expense plans. Contractors can increase their bond strength with a standard bond program by following these five steps:

1. Build relationships with your senior financial advisors. This includes a professional mortgage agent, a CPA specializing in construction, a bank that understands construction loans and, of course, your underwriter.
2. Increase the quality of your financial statement presentation. CPA prepared fees add credibility to the information you provide. A CPA, preferably a design-focused CPA, understands the importance of solid internal costing systems and can provide a percentage-of-completion format preferred by auditors. CPAs will help you present your financial profile in the best possible way. The additional profit earned and money saved by converting to a standard brokerage program should more than cover the additional cost of professional CPA services.
3. Increase working capital and business capital. Commit to building your balance sheet to support your desired plan by giving up big bonuses or unnecessary equipment purchases. If the balance sheet supports your plan, the surplus can be withdrawn as you wish. This shows that you are willing to do what is needed now to make your company successful in the long term.
4. Show evidence of internal control. Robust systems that track labor costs, manage the collection of receivables, provide for prompt payment of debts when due, reduce excess inventory, and improve employee performance are all critical to your company’s success. The following best practices will contribute to improved bottom line profitability:

• Unannounced background check
• Use of approved contract forms
• Relevant documents for the change order
• Proof of insurance for all subcontractors
• Protection of assets such as machinery and materials
• Written security policies to reduce workplace risks
• Incentives that reward employees with a lower level of profit

5. Provide information about the work to be done. The more detailed information you can provide about the job you want to bid on and how your knowledge and skills are qualified to do it successfully, the more certainty you will have in providing a bond. Additionally, your willingness to fulfill the underwriting requirements will greatly improve your chance of receiving additional guaranteed support.

Old Republic Surety Company prides itself on taking a consultative approach with contractors who are willing to take the necessary steps to increase their partnership strength. We can give you the advice you need to take your bond program to the next level. Contact your bond agent for more information, or contact us to connect you with the best bond producers in the business.

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