bid security

Why I LOVE the T-list

OK, first let’s start with “What is it?”

The term T-list, is surety bond slang for a list of bonding companies approved by the Treasury Department.  The technical name is Circular 570 (not as cool as “T-list”).

In order to issue a Performance and Payment Bond to any branch of the federal government (Army Corps of Engineers, Navy, OGS, etc.) the bonding company must be reviewed and approved in advance.  The government adds them to the list and assigns a maximum dollar amount for the largest single bond the gov. will accept from that carrier. Obviously the federal government is a major source of bonded projects (nearly all federal contracts require bonding), and they DO spend a lot of money: Over $500 Billion in 2017.  Not on the T-list = miss out on all that fun!

In addition, there are many other public and private entities (such as municipalities) that may choose to require a T-Listed surety on bonds that protect their projects.  They view it as a way of establishing the surety’s credentials.  The T-List, Circular 570, is a big deal for bonding companies.

So, why do I love it?  It’s because now the bonds we issue are T-listed!  The maximum bond amount is over $10,000,000.00.  This is a really big deal.

As if that’s not enough good news for our agents, we even decided to raise our commissions to celebrate this important milestone.

You know us for our speed, creativity and superior service.  Now you can add the T-List and high commissions!

Call us with your next bid or performance bond need. 

Steve Golia, National Surety Director 856-304-7348

KIS Surety Bonds LLC

Surety Derangement Syndrome “SDS”

Why wouldn’t you be upset?!

You need a bid or performance bond for a construction project (you need it now). 

It goes from the underwriter who loves it, to the supervisor to the bond manager, then to the genius in home office who HATES it! And it only took two weeks to get… a declination.

There are just too many layers! Naturally you have Surety Derangement Syndrome!

The good news is that we will provide a solution. Here it is, your very own, “Preferred Access Code.” With this code you can cut through all the layers. You want to get right to the decision maker. Talk to the person with the authority to make it happen. Present your case and have the dialogue that can result in an approval. This is the process you’ve been hoping for, but nobody would allow you.

With your special Preferred Access Code, you can talk directly with a $10 million underwriter. Just think of it. You pick up the phone, make the call, and immediately, you have access to a $10 million approval. Awesome.

Get a pencil and write it down. Here is your special Preferred Access Code:

GIMMESTEVEPLZ

Call this number 856-304-7348 and enter your Preferred Access Code.  You will immediately be connected directly with the decision maker. Not a receptionist. Not a computer: “Your call is very important to us…” 

Not a Junior Assistant Underwriting Trainee. This is the real deal.

Say goodbye to your chronic SDS! Steve Golia is a long established surety bond provider and expert. Call us with your next bid or performance bond. 856-304-7348 

Test your code today to verify it works, and you can use it all day, every day. That’s right. You don’t have another surety like this.

Here it is again:

856-304-7348

“GIMMESTEVEPLZ”

Secrets of Bonding #164: The Phantom of the Underwriting Department

When it comes to surety bonds, you know your underwriter. You know the process.  There are questions and answers, then a decision.  Simple, right?

You rely on your rapport with the surety and know how to monitor the status of the underwriting.  Maybe you understand the underwriter you see.  But what about the invisible surety underwriter, a shadowy phantom who exists in every transaction, and whose opinion always affects the outcome. Call this mysterious one “The Phantom of the Underwriting Department.” 

For mood music, Click!

You cannot talk to the Phantom…

Invisible.

There are no emails, no Q. and A. 

And yet, the Phantom analyzes, reviews and influences every bonding decision.  Let’s pull back the curtain on this ethereal being.

Contractors Questionnaire

It all starts here.  Your underwriter looks at the basic info: How long in business?  Largest prior jobs? What do they do, what do they sub?

But the phantom yearns for more. What company ownership structure was chosen?  Is it a proprietorship, corporation or LLC?  Did the founders make prudent decisions? These choices affect taxes, profits and future liabilities.  They can help or hurt the company… and its surety.

If criminal history, litigation, tax problems or surety bond claims / losses are indicated, these may require further investigation.  The Phantom will make a deeper review.

Continuity of Ownership: Who succeeds the current stockholder in the event of death? Will the company maintain operations and complete its projects? These arrangements show that management has an eye toward the future.

The Work In Process Schedule

These are requested often.  They show the contracts in progress, their billing status and costs. The underwriter wants to know how much “work on hand.” Then, silently, the Phantom digs deeper.

The current expected profit is compared to the original estimate. What does this show? Is the profit expectation as predicted or better? Is the estimating department in sync with the field organization?  Is job site supervision highly efficient? Can an undeclared underbilling asset be added to Working Capital?

Is the expected profit sufficient to produce a net profit at year end?  The Phantom will compare the projected job profit percentage to the company Profit and Loss Statement. Based on historical expense trends, the likelihood of an upcoming profitable fiscal year-end can be verified.

Company Financial Statements

He loves these.  There is so much.  They talk to him. The Phantom takes full advantage of this document to determine more than just “the numbers.”

Beginning with the accountants cover letter, who has the contractor chosen for this important assignment? Are they using a construction expert? Did they pay for a quality presentation?  Is the best accounting method in use? Is the fiscal date at an advantageous point in their business cycle?

Obviously, underwriters look at working capital, net worth, ratios, profitability. But there is so much more.  The financial statements show how the stockholders / managers treat the company.  What does it mean to them? Do they nurture and respect it, growing the tiny acorn into a mighty oak?

Past borrowing practices are revealed.  Also, the relationship between financial performance and the ambitions of management.

Growth of the revenue stream is observed and management’s success in monitoring / controlling expense levels.

The Phantom reviews financial statements and tax returns to appreciate the owner’s commitment to the bonded company.  This commitment is a cornerstone of the underwriter’s confidence.

Banking Relations

Very important! There are similarities between banking and surety bonds.  The banker’s opinions help reaffirm the underwriting position.

The banking history can reveal good cash flow and prudent business practices.  It can indicate stability, reliability and good management skills.

Credit Reports

The pay record is just the tip of the iceberg.

Now there is a historical review which indicates the adequacy of cash flow, the quality of money management, planning and the applicant’s good moral character.

The Phantom is always there, making this deeper analysis that may never be discussed, but can always make a difference.

Meet Our Phantom

Now, Remove the Mask!

Sorry, we don’t actually have any Phantoms.  All our underwriters are regular people, with real experience and know-how when it comes to bid and performance bonds. Our surety professionals review the facts promptly and efficiently. 

Their deep analysis enables us to support opportunities that may have been declined elsewhere – up to $10 million each.

We hope you found this article entertaining, but more importantly, informative!  With us, the underwriting is deep and detailed, giving the applicant the highest likelihood of approval.

Call us with your next bid or performance bond, and speak to a real person. 856-304-7348 

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It’s SO HOT!

Record heat is being recorded in many parts of the country.  But what else is hot?

  1. Floyd Mayweather – Hot earner made $7.6 million per minute for his fight with Connor McGregor
  2. Stephen Curry – Hot contract, NBA’s first for over $200 million
  3. Timothy Berners – Lee (never heard of him?) Inventor of the world-wide web and creator of the first web site. He changed everything. Very hot.
  4. Surety Bonds by KIS – Exclusive national underwriters for Great Midwest Insurance Company!
  5. Bill and Melinda Gates – Hot philanthropists donated $4.78 Billion in 2017. (Don’t worry, they kept some for themselves.)

What was that number 4, Surety Bonds?! Come on!  How can they be hot?

Glad you asked:

Surety bonds are a special area of the business.  They are unique and difficult, an opportunity and sometimes an obstacle.  But they are always a chance to shine: A path to greater success for you and your clients.  All you need… is a way to get there.

What if the surety underwriters were cooperative and production oriented?

Wouldn’t THAT be hot?

You need to ask yourself

  • Do my underwriters promise a same day response?
  • Do they help me find a way to write the business?
  • Are they open to a wide range of underwriting situations?
  • Are they Problem Solvers?

If not, you need to heat up your surety bond production.  Find out why agents bring their big / tough contract surety bonds to us.

Same day response.  Bonds up to $10 million.  Flexible and creative.  THAT’S HOT!

We can help you solve your next contract surety need. Call us! 856-304-7348

Our Surety Agents Look Good

* Tuesday 6/19/18: We received an urgent submission.  A new client needed a $1 million final bond. We reviewed the file immediately and sent back our “road map to success.”

Complicating factors:

  • New file.  Short fuse.  All the basic analysis, credit reports, financial evaluation, indemnity agreement, etc. were needed.
  • Another surety had issued a bid bond, but because of unexpected developments, was unable to provide the final bond
  • There was a bid spread
  • The job specifications needed clarification regarding the surety obligation and possible requirement for a maintenance bond
  • Company year-end FS was a draft
  • Analysis regarding the collection of FYE Receivables was needed
  • Two other sureties reviewed this opportunity, causing the clock to run down for the client

* Wednesday 6/20: Agent provided additional info.

* Thursday 6/21: An engineering evaluation of the project was completed, including the adequacy of price.  Wednesday evening and Thursday, the underwriting review was completed. Bond is approved!

*Friday 6/22: Bond is issued and in the hands of the agent and contractor.

Actual agent comment: “Thanks so much!  Great job!”

Making our agents look good.  That’s what we do.

We can help you solve your next contract surety need. Call 856-304-7348

Secrets of Bonding: #163: Financial Statement Fraud!

You know the old adage, “Financial statements don’t kill people, people kill people.”

While it’s true there can be misrepresentation and deception in a financial statement (FS), the document is not inherently bad, it is the poor intentions of the preparer or company that is to blame.

As credit analysts, we always review and rely on FSs when underwriting surety bonds. We know there may be attempts to mislead our judgement or even downright deception. But the need to evaluate the financial report is unavoidable. It is considered a valuable “report card on the quality of management.”

There are three levels of financial presentation by Certified Public Accounts (CPAs):

Compilation – a properly organized report where the numbers have not been verified or evaluated by the CPA

Review – includes some checking “Review” of key elements

Audit – is the highest level and includes the CPA’s statement that they have checked and believe the numbers are correct

The reader of the FS is entitled to certain expectations: A candid and complete presentation that informs the reader. Are they entitled to more than that? Does the reader sometimes expect too much?

Let’s consider what the FS actually says, and what it doesn’t… 

The Balance Sheet

This shows assets and liabilities. It describes the dollars in the company (assets) and who owns them (liabilities and stockholder’s equity). You know many of the normal entries: Cash, accounts receivable, accounts payable, inventory, bank debt, the net worth / stockholder’s equity section, etc.

The balance sheet always has a date, such as 12/31/2017. It shows the status of these accounts on the one day. Credit analysts calculate the Working Capital aka Net Quick (NQ) which is considered a measure of short term financial strength. You find the NQ by subtracting current liabilities from current assets. When the bond underwriter has the NQ number, it can then be incorporated in the decision making.

“What size bonds will be approved for this applicant?”  “How much total capacity can they be allocated?” The NQ figure becomes a benchmark that is used for the remainder of the year.

For many analysts, this one number carries a huge importance for the following 12-15 months.

Let’s move forward one day in time, to 1/1/2018. “Happy New Year!” and let’s check the bank account. Some money has come in! The accounts receivable and cash have changed. Other elements are also different and so, if we calculate the NQ based on the 1/1 balance sheet, the NQ will probably be different from 12/31. Again, that’s because the balance sheet shows the state of these accounts on ONE DAY. It is always changing!

The reality is that the working capital number is only correct for one day, then it is subject to revision. This is not to say the number is not important or relevant. And certainly decision-makers must have annual benchmarks and a method for their determinations. It is very important, but so are other elements.

Financial Statement Fraud

The most common FS fraud is not committed against us by others. It is the self-deception we commit by over relying on these “one-day numbers.” To do so is to miss the big picture!

Underwriters love to see a big cash account sitting on that top line (of the balance sheet). But that’s a one-day number. Isn’t it even more important to determine the average funds on deposit for the prior six months or year? Many analysts fail to ask for this.

Accounts Receivable and Payable – here is another key area where the “one-day number” can easily be given a historical perspective. Aged schedules of A/R and A/P are easy to obtain and they give a view over more than one day. These documents are not automatically included in FSs, and underwriters may fail to ask for them.

Another example: A broader understanding of the banking relationship is accomplished by looking beyond the balance sheet bank debt.  A reference letter can reveal if the client has bounced checks, broken loan covenants or defaulted.

Conclusion

As readers of these documents and analysts, let’s not cheat ourselves by over relying on the balance sheet or thinking it is more than a one-day snapshot. It should be scrutinized and viewed in harmony with other key underwriting factors such as mid-year financial reports and supporting documents.

In this manner underwriters can make realistic, well-informed decisions.

Steve Golia is a long established surety bond provider and expert. 

Contact us today and let’s discuss how we can help – even if others have failed. Call 856-304-7348.

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Secrets of Bonding #161: No More Performance Bonds!

This is the Bonding Company’s worst nightmare…

In this article we will cover the situations in which no Performance or Payment Bond is needed!  Some of the projects are big and federal, some are private, ALL are unbonded.  Here we go!

As a point of reference, you may expect that federal, state and municipal contracts demand a Performance and Payment (P&P) Bond equal to the contract amount.  Normally they do.  General Contractors working for a private owner, such as the construction of an office building or apartment project, may face the same requirement.  This can apply to subcontractors, too.

Federal Projects

This area includes all branches of the federal government. Examples: Army Corps of Engineers, General Services Administration, Dept. of Energy, etc. Their contracts are administered following the rules of the Federal Acquisition Regulations (FAR).

Suprisingly, the FAR says that no P&P bond is required on contracts under $150,000.

For contracts $150,000 and higher that require security, there are times when the bond requirement may be reduced below 100% or waived entirely.  These include:

  • Overseas Contracts
  • Emergency Acquisitions
  • Sole-Source Projects

If 100% security is mandatory, the FAR lists acceptable alternatives to a P&P bond:

  • US Government (investment) Bonds
  • Certified Check
  • Bank Draft
  • Money Order
  • Currency
  • Irrevocable Letter of Credit

Here’s another option: For contracts performed in a foreign country, the government can accept a bond from a non-T-Listed surety. (Circular 570) Crazy!

State and Municipal Contracts

The bonding requirements may vary by state, but generally their flavor is similar to federal.  They, too, may accept alternative forms of secutity such as an ILOC.

Private Contracts

Anything goes.  On private contracts, the owner has complete discretion to set the bonding requirements – including no bond needed.  Keep in mind, the cost of the bond is added to the contract, so the owner can save some money by not requiring a bond.  They may take other precautions to protect themselves.  Some examples:

  • Require a retainage. These are funds that are held back from the contractor and only released when the project is fully accepted (reduces the risk of Performance failure)
  • Lien releases may be required each month to prove suppliers and subcontractors are being paid appropriately (reduces the risk of Payment failure)
  • Funds Control / Tripartite Agreement – a paymaster is employed to handle the contract funds (Payment risk)
  • Joint checks are issued to the contractor and payees below them – to assure the funds reach the intended parties (Payment risk)
  • Physical site inspections to verify progress (Performance risk)

The Nightmare

In these articles we talk a lot about how contractors can obtain surety bonds and manage them.  But it is interesting to note: A construction company could go forever, performing state and federal projects – and NEVER get a bond.  It’s true!

If everyone did this, it would be the surety’s worst nightmare.  But in reality, there are financial advantages to using P&P bonds, so bonding usually is the first choice. 

Steve Golia is a long established surety bond provider and expert. 

We can help you solve your next contract surety need.  Call us now: 856-304-7348

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