Investment Protection For Todays Construction Lender

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Investment Protection For Todays Construction
Lender
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What is Surety Bonding?
Obligee
Principal
Surety
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Three Types of Bonds

• Bid Bond
• Performance Bond
• Payment Bond

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Three Types of Bonds

• Bid Bond
• Performance Bond
• Payment Bond

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Three Types of Bonds

• Bid Bond
• Performance Bond
• Payment Bond

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Most Public Projects Require Bonds

• Federal Law
• Heard Act (1893) Miller Act (1935)
• State Local Law
• Little Miller Acts

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Surety Bond Requirement

• Bond requirement as condition of a loan
• Bond requirements in contract specifications
• Contractor obtains the bond
• Prequalification process

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Obtaining a Surety Bond
Stipulate Parties
Penal Amount
Surety Obligations
Construction Contract
Project Description
Location
Verify Data
Signed Dated
Surety Bond Form
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Financial Statement Analysis
Opinion Page
Balance Sheet
Income Statement
Cash Flow Statement
Background Investigation
Account Schedules
Investment Strategies
Cost Control Mechanisms
Financial Statement
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Business Operations Analysis
Organization Chart
Key Employee Resumes
Business Continuity Plan
Work In Progress
Emergency Plan
Sub References
Line of Credit
Recommendations
Underwriting Requirements
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Cost of Surety Bonds

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Construction Default
Source Dun Bradstreet
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Construction Risks
Contractor Inexperience
Weather Delays
Labor/Material Shortages
Economic Downturn
Job Site Conditions
Death of Key Employee
Failure
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Construction Risks
Accounting Issues
Unrealistic Growth
Personnel Issues
Scope of Business
Failure
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Protection in Default Situations

• Provide contractor with financial and technical
  assistance
• Arrange for a new contractor
• Rebid the job
• Pay the penal sum of the bond

Surety
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Surety Bonds Vs. Letters Of Credit
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Benefits to the Construction Lender
Lender
Obligee
Principal
Surety
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Benefits to the Construction Lender

• Qualified contractors
• Credit enhancement
• Subcontractor protection
• Dual obligee protects contractor
• Surety fulfills contract in case of default

Lender
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Surety Bonding is About...
Financial Security
Construction Assurance
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For More Information

• Surety Information Office
• 1828 L St. NW, Suite 720
• Washington, DC 20036
• 202-686-7463 Fax [phone]
• www.sio.org sio_at_sio.org