Preparing for Surety Bond Underwriter Questions

If you’ve been involved in a large construction project, you are familiar with surety bonds and all of the underwriter’s questions you need to answer. If you’re new to the game, it can be daunting.

Many small contractors pass on bidding for projects if they require a payment and/or performance bond. They may have the finances, track record and experience to complete the project, but the application process for bonds can be forbidding.

But it doesn’t have to be that way as long as you are prepared and know what kind of questions the surety insurer’s underwriter will be asking.

Surety bonds are generally performance bonds, which protect the project owner from financial loss if the contractor’s work is defective or of poor quality, or if the contractor fails to complete the work or follow the terms and conditions in the agreement.

For example, if the contractor fails to finish a project due to a shortage of workers or financial problems, the surety company has to step in and perform in the contractor’s place. Obviously, it’s in the carrier’s best interest to insure projects where they won’t be asked to perform. As a result, the questioning can feel like an inquisition, but it’s worth it to be prepared so that the insurer underwrites the bond and you can get to work.

The parties

There are generally three parties to a performance bond:

The obligee This is the project owner, typically a local, state or federal agency, that will require the bond.

The principal This is the contractor that’s been hired to work on the project. Whenever a building contract requires a surety bond, it’s up to the contractor to secure it. The insurer will be most interested in the three “Cs” of surety bonds, namely, your company’s:

  • Character,
  • Capacity, and
  • Capital.

The surety insurer  This is the company that will underwrite and back up the bond. They’re the ones that will be asking you the tough questions.

Typical application questions

The underwriting process is meticulous and various insurers have different questions they will ask. Some that a contractor can expect include:

  • Have you, the principal, ever worked with this owner or general contractor (if you’re a subcontractor)? What was that project and was it successfully completed?
  • Can we confirm financing on any private project? This question aligns with Section 2.21 on the American Institute of Architects (AIA) Document A201.
  • What is the proposed project scope? Have you worked on a similar project before, and what was the outcome of that project?
  • Geographically, are there any constraints that could impact your ability to complete the project? For example, if you’re working in a state with proprietary workers’ compensation laws, can you obtain the necessary insurance coverage to comply with that state’s statutory workers’ compensation requirements?
  • What is the warranty period? Is it a typical time period or longer than usual?
  • Name any material manufacturers involved in the warranties, and do the contract terms allow the contractor to tender claims to them?

Other areas of scrutiny

Besides the above, the surety insurer will also likely want to know:

  • If the start and completion dates in the contract are feasible.
  • The amount of the bid bond if there is one.
  • Any warranty terms and if they are sensible.
  • The payment terms and if they will allow the general contractor to manage the funds during the life of the project. In other words, will the period payments be enough to pay workers and purchase materials?
  • If there is any retainage, or the withholding of the final contract payment for a specific time period to ensure that the job has been properly completed.
  • If there are any damages that are set out in the contract in case of non-performance or shoddy workmanship.
  • If the contractor’s costs to complete other projects that it is working on are sufficient to ensure that it can cover its general and administrative costs in the following year.

The above list is not exhaustive and some surety insurers may have different areas they will want to explore to ensure the contractor has the wherewithal to complete the project.

If you are vying for a contract that requires a surety bond, you’ll want to make sure your finances are up to snuff and that you have a strong track record.

If you would like to speak with us call Gary Wallach at 914-806-5853 or click here to email or click here to visit our website.

BGES Group’s office, located in Larchmont, NY is a full service insurance agency offering, Property, Liability, Umbrella Liability, Business Auto, Bid & Performance Bonds, Inland Marine, Worker’s Compensation, Workers Compensation Premium Recovery, New York State Disability, Group Health, Life insurance, Personal lines and Identity Theft.

Special Contractor Insurance Programs (NY, NJ, CT) – We we have 60+ insurance companies to market your general liability, umbrella liability, business auto, workers compensation, bid & performance bonds and group health coverages. We help contractors set up proper risk transfer. If you’re a contractor we offer extensive information about insurance markets, coverages, risk transfer, subcontractor screening, ways to lower your insurance costs.

BGES Group are Worker’s Compensation Specialists for the States of New York, New Jersey and Connecticut – Issues we address: 1) Lowering pricing – we have specialty programs that can save you up to 40%; 2) Finding a new company; 3) Replacing policies that are being cancelled or non renewed; 4) Audit disputes; 5) Company creating fictitious payroll at audit time; 6) Lowering high experience modifications factors; 7) Misclassification of payrolls; 8) Lowering or eliminating renewal deposits;  9) Getting coverage when you’ve been without for a few months; 10) Covering multiple states under one policy; 11) Eliminating 10% service or policy fees; 12) Timely issuance of certificates; 13) Always being able to get someone on the phone or by email when you need to.

If you would like to speak with us call Gary Wallach at 914-806-5853 or click here to email or click here to visit our website.

Company: BGES Group, 216A Larchmont Acres West, Larchmont, NY 10538



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