funds control

Bonding Companies Are ALL The Same.

OK, you know that’s not true.  In fact, your success may depend on knowing the differences between sureties.  Each one has a certain appetite, a niche.  We are all the same, and yet we are all different.

So here is a little bit about us.

What We Do

  • OUR GOAL is to be your high capacity market that provides fast, reasonable, (maybe even wonderful) underwriting responses!
  • Exclusively contract surety.  That means bid, performance and payment, and maintenance bonds.
  • We bond construction, including subcontracts, plus service and supply contracts.
  • Sovereign nation contracts are supported
  • Also demolition, abatement and remediation
  • We will consider young companies
  • Production Underwriters: We can support companies with less than perfect credit – even with liens and bankruptcies. We’re not shackled by “bonding company bureaucracy.”
  • We are flexible regarding financial statement presentation on bonds up to $10 million each.
  • We have our own contractors questionnaire, bond request form and WIP schedule because after doing this for forty-five years, we know what info helps get your deal done.
  • Our standard bond forms are unmodified AIA forms, readily accepted throughout the construction industry.
  • Our rates are flexible / competitive.
  • We are licensed to write in every state, including D.C., and can also consider overseas projects.
  • We respond to all new business submissions on the day received.
  • We are offering new agency appointments.  No volume commitment is required.
  • Our underwriting staff is available every day of the week, including evenings, 365. (You can call us right now! 856-304-7348)

What We Don’t Do

  • Fidelity bonds or surety other than contract.  For example, we do not support license & permit, court & probate, or site & subdivision.
  • Waste your time.  We only develop files we expect to write.

We not bragging.  We just wanted you to know.

Our strong financial position (Best rating: A-8) makes us a perfect fit on a wide range of opportunities.  Aggregate programs to $15 million and fast service.  How can we help you succeed today?

 

KIS Surety Bonds, LLC is the exclusive surety underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.  “steve@kisbonds.com” or call 856-304-7348.

SECRETS OF BONDING #157: Bid Bond Quiz

Is there anything less interesting than a bid bond?

They may not seem too exciting, but the lowly bid bond is an integral part of our surety business.  For contractors, they are often the key to acquiring new revenues.  If you don’t think they are important, watch what happens when a client is waiting for one that never arrives.

As surety underwriters, we spend a great deal of effort assuring these documents are accurate, delivered on time, and we track the outcome on each one.

Everybody knows about bid bonds, right?!  OK let’s see if you do…

True or False:

  1. If you decide to not use a bid bond you ordered, you have to send it back to the surety within 48 hours
  2. They have an expiration date
  3. A bid bond precedes every performance bond
  4. The surety can cancel the bid bond
  5. The dollar value of the bid bond equals the amount of the proposal it accompanies
  6. The surety must know the exact dollar value of the bid bond before they will issue it
  7. The premium for them must be paid in advance
  8. They remain active for up to six months
  9. It is better to use a check for security than a bid bond
  10. The same surety that issues the bid bond must issue the performance bond

OK team, how’d you do?  # of True______? # of False____?

They are all False!

  1. An unused bid bond has no value but it makes a great liner for your bird cage
  2. Never has an expiration date
  3. Some contracts are negotiated (no bid bond) or may require a surety capacity letter instead
  4. Like a performance bond, these surety instruments cannot be cancelled
  5. Most often the penal sum of the bid bond equals a percentage (10-20%) of the proposal amount
  6. Most bid bond amounts are expressed as a percentage of the proposal amount, not a dollar amount, to protect the confidentiality of the proposers bid. In such cases the exact dollar value is unknown in advance.
  7. Sureties are entitled to charge for them, but usually don’t
  8. Although not stated, most sureties consider them void after 90 days
  9. Wrong! If the performance bond is not produced, the check can be forfeited
  10. Nope! Two different sureties can be used, even if a “Consent of Surety” was issued with the bid bond.

Bonus Question: If the bid is rejected because the surety’s credentials are found to be inadequate, can this result in a bid bond claim?

Answer: Theoretically, it should not. If the bond is declared inadequate, how can it be sufficient for a claim?

When flexibility and aggressive underwriting are needed, give us a call. We have in-house authority for Bid and Performance Bonds up to $10 million each, and guarantee a same day response.  Find out what you missing when it comes to surety bonds.  

KIS Surety Bonds, LLC is the exclusive surety underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.  “steve@kisbonds.com” or call 856-304-7348.

Secrets of Bonding #155: The Double Bonding Conundrum

This is America. Everyone is entitled to their opinion. But on the subject of Double Bonding (Contract Surety) we will not all agree.

So here are the facts. You will decide if this is a great idea or just a waste.

What is Double Bonding?

Also called “back bonding” or “subcontract bonding” an example would be when both a subcontract and a prime (directly with the project owner) construction contract are bonded. The prime contractor is the General Contractor (GC).

The GC gives some of the work to trade contractors such as the plumbing, electrical and HVAC. These firms may be required to give a subcontract bond to the GC guaranteeing their work. In turn, the GC provides a bond that covers everything. In other words, it too covers the plumbing, electrical and HVAC. That’s the “double” part. Sounds pretty dopey so far, right? Why would anybody do that?

Turns out this occurs often. Depending on your viewpoint, it may seem helpful / essential, or just a waste of money. Let’s evaluate it and you decide.

Why Love It:

  • Owner: Subs that have been approved by a surety may perform better.
  • GCs: May have a policy to automatically bond subs over a certain dollar value. This is intended to prevent delays and unpaid bill problems.  In addition, the GC / prime contractor is the direct beneficiary, and the potential claimant against such bonds.
  • Subcontractors: With a surety backing them, they may have an advantage when pursuing new work. These are important credentials that prove they have passed the underwriters scrutiny and have the backing of a professional guarantor.
  • Sureties:  May find it easier to support the GC bond if major subs are bonded. A portion of the risk is then covered by *another bonding company.
  • Third tier subs and material suppliers: May not be protected by a payment bond unless double bonding is in place. The GC’s bond may not go down to the third tier (sub of a sub or third tier suppliers.)
  • The most important reason: It is possible that the GC’s surety may insist that major subs be bonded as a condition of supporting the GC. This can be the key to acquiring the contract.

Why Hate It:

  • Owner: Doesn’t need sub bonds because the GC’s bond already covers all the work.  They may be forced to bear the related premium costs if the sub bonds were anticipated. If they were not, the charges may come out of the GC’s profits.
  • GC: In a competitive situation, the related costs could cause them to lose the project. Sub bonds may help GC with their surety, but they do not reduce the cost or dollar value of the GC’s bond.

Bonus Conundrum

Love it or hate it, double bonding is sometimes done voluntarily, or it may be stipulated by the GC’s surety. There is no denying that the concept is important – so important that in some cases both the GC bond and the sub bonds are written by the *same surety. Why would they do that?!

~ ~ ~

KIS Surety Bonds, LLC is the exclusive underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.

We have in-house authority for Bid and Performance Bonds up to $10 million each.

Contact us for creative solutions and a same day response: 856-304-7348.

Flat Tires and Surety Bonds

“It’s only flat on the bottom!”  When you heard that, did it make you feel any better?  No… a flat tire is a real PIA. Nothin’ good about it!

What about “Flat line?”  Heaven forbid!  That’s real bad.

When I was a kid we had an expression, a “Flat leaver.”  That was a person who left you flat. Don’t like that either.

You can probably think of other examples: Flat footed, flat broke, flat on your back…

BUT! When it comes to surety bonds, flat can be good. Look at how major sureties typically make their decisions.  There is the field person in the branch, plus a supervisor, and a bond manager.  Then there is a home office underwriter, maybe two.  Together this “committee” makes major decisions.  Problem is, they don’t actually work as a committee, they process the decision sequentially.  Each person looks at it, then sends it on to the next.  That’s a great system, unless you need an answer in this lifetime!

This is an example of a decision making structure that is not flat.  It is multi-layer, multi-person, each with an “in” box and other priorities.  Getting a decision will take a couple of weeks.

When it comes to surety bonds, you want flat.  You want a structure where decisions are made promptly and efficiently.  Then everyone wins.  You get the answer you need, when you need it.  Isn’t this how the system is supposed to work?

KIS Surety / Great Midwest Insurance Company (GMIC) is your large capacity, most flat market.  We process decisions fast.  All new submissions receive a same day response.  Productive, creative, expert underwriting that has produced superb results for years.

Do yourself a favor.  Take a step up to surety bonds the way they should be. KIS Surety Bonds, LLC is the exclusive underwriting department for Great Midwest Insurance Company an “A – 8” carrier licensed in all states plus D.C.  We have in-house authority for Bid and Performance Bonds up to $10 million each.

Contact us for creative solutions and a same day response: 856-304-7348

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Secrets of Bonding #149: Be A Surety Bond Fixer

Brought to you by…Secrets of Bonding is brought to you by Bonding Pros

Need a bond?  Talk to the Pros!  856-304-7348  www.BondingPros.com

Brokers protected.  Contractors welcomed.

Being a problem solver is a great way to deliver value for your customers.  When it comes to surety bond problems, do you have any creative solutions?  Are there tricks up your sleeve that make your clients say “Mr. / Ms. Bond Fixer, I’m sure glad I called you today!

Well try your hand at solving these surety bond problems.  They may have more than one good solution, but I will give at least one for each at the end.

  1. The company owner is willing to give personal indemnity, but the spouse refuses. Your solution?
  2. The underwriter has approved a performance bond but collateral is required (money the contractor lets the surety hold as a security deposit against possible bond claims.) The contractor doesn’t have the cash to put up. Your solution?
  3. The subcontractor is required to provide a P&P bond, but no surety will support it. Your solution?
  4. In order to support a Performance Bond, the underwriter requires a CPA Reviewed financial statement. The client didn’t anticipate this and only produced a Compilation (lower quality) report at their last year-end. Your solution?
  5. A property owner has awarded a project to the contractor, but he is being required to issue a performance bond to the local township. The underwriter declines this stating “there is no contract for the performance bond to cover.” Your solution?
  6. Company Working Capital is too low. Main problem is that Accounts Receivable were overdue at fiscal year-end. Your solution?
  7. An old line excavation contractor can’t get bonded because their Net Worth is too low and the Debt to Equity ratio is too high! Your solution?

 

Feel free to post your ideas on how to fix these bond problems.

 

Possible Solutions:

  1. Indemnity – Get the spouse to sign a “non-transfer agreement” prohibiting the indemnitors assets from being moved over. Other possibilities: Spouse indemnity that excludes certain assets, capped indemnity with a maximum dollar value or trigger indemnity that is active only under special circumstances.
  2. Collateral – Can another party put up the money? Could be in the form of a loan to the company owner. Maybe an interested subcontractor or supplier will put it up so the contract can proceed (and they get the work.) How about using Funds Control with a hold back that collects the collateral account from the contract funds as the work progresses?
  3. No subcontract bond – The general contractor could add a retainage clause to the contract, or increase it in lieu of the bond (hold back some money until completion as a security deposit.) On a short term subcontract, make a single payment for the full contract amount at the end when the work is satisfactorily completed.
  4. Compilation FS – Have the CPA go back and do the additional work to upgrade the report. Sometimes, if it is late in the fiscal year, the underwriter may proceed with bond issuance based on proof that the next CPA statement will be a Review. Get a copy of the engagement letter with the CPA.
  5. No contract – The underwriter is correct. There is no contract with the township, it is with the property owner.  A bond on the property owners contract would be for the wrong amount in any event.  A Site or Subdivision bond is the correct way to protect the interests of the municipality.  It would guarantee the construction of the “public improvements” such as roads, sidewalks, sewers, etc. Caution: The property owner should be the applicant for this bond (not the contractor!) or they should at least be an indemnitor.
  6. Slow Receivables – Slow receivables are disallowed by analysts based on the expectation that they will never be collected. Obtain a current update on the collections of the A/R list from the financial statement date. If they have subsequently been collected, they are included in the Working Capital analysis despite being old on the FS date.
  7. Low NW – After years of operation, depreciation can wipe out the asset value of heavy equipment on the Balance Sheet. Document the current value to re-capture these dollars for the financial analysis. Get a copy of the equipment floater and a current appraisal to determine the current “forced sale” value.
  8. Other problems – Think we listed all the possible bonding problems in this article? No, we left out a few million! When you get tough bond problems, or just want the help of experts, give us a call. That’s all we do!  We have the markets and the expertise.

Insurance Agents and Contractors: Love the “Secrets” articles? You’ll really love it when we solve your tough bonding problem! We have the markets and the know-how to succeed even when others have failed.  Call us with your next surety bond need.  We guarantee a same day response.  856-304-7348

Not available in all states.

Secrets of Bonding #140: Make Tax Liens Disappear!

Brought to you by…Secrets of Bonding is brought to you by Bonding Pros

Need a bond?  Talk to the Pros!  856-304-7348  www.BondingPros.com

Brokers protected.  Contractors welcomed.

When tax liens, bankruptcies and judgments appear on credit reports, they can prevent sureties from issuing bonds and banks from granting loans.  This can be devastating for construction companies that need both to succeed. 

Are there ways to get the tax lien off the credit report?  Yes! Let’s find out how.

According to the government: “A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.”

For surety bond underwriters, the tax lien is a red flag for a number of reasons:

  • It can mean the bond applicant had insufficient cash flow to meet their financial obligations.
  • It may be a sign of poor management or weak internal controls.
  • The scariest part may be the “weapons” used by the IRS to collect their tax money. They can issue a tax levy.  This permits the legal seizure of property to satisfy the tax debt. They can garnish wages and take money from a bank or other financial account.  They also have the ability to seize and sell vehicles, real estate and personal property. These collection activities can threaten the success of bonded projects to the detriment of the contractor and surety.  Bad for everyone except the IRS agent.

Here is how to remove tax liens from the credit report:

  1. Eventually the credit bureau may drop it from the report even if it is not paid, but this can take years.
  2. Pay the tax bill. Eliminating the debt will not remove the lien from the credit report, but will show it as “released.”  For credit grantors, this is still negative, but less threatening.  Paid liens remain on the report for seven years. So the next step is also needed…
  3. Federal form 12277. With this document you can ask the IRS to withdraw (remove) the lien notice, even when the debt is not paid off!

More about form 12277

This is part of the federal “Fresh Start” program, which provides certain benefits to taxpayers.  12277 is the Application for Withdrawal form.  The IRS will consider withdrawing the lien notice if the debt is being paid through a Direct Deposit installment agreement, plus a few other conditions.  See the form.

The purpose of the Application for Withdrawal is not to eliminate the lien, but to remove it from public view when there is no longer the threat of a tax levy.  Consider using this procedure on liens that are not paid off, and those that are!  In both cases it is legal and beneficial to have the lien disappear.  But is this practice unfair or deceptive?   No, because banks and bonding companies have other ways of detecting the lien.  They are not being deprived of relevant information.  For example, the debt will appear in the financial statements and also on the Contractor Questionnaire.

One more comment about the dreaded, draconian tax levy: Before the IRS proceeds with the levy they are required to send the taxpayer a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. This gives the taxpayer one last chance to argue against the levy before it is implemented.  Go for it. Maybe it will help.  Remember – they’re from the government and they’re here to help!!!

Now you know the ways to remove a federal tax lien from view.  By waiting, paying and / or using form 12277, the lien can be wiped from the credit report.  For the taxpayer, it can be an important step toward financial recovery.

Insurance Agents and Contractors: Love the “Secrets” articles? You’ll really love it when we solve your tough bonding problem! We have the markets and the know-how to succeed even when others have failed.  Call us with your next surety bond need.  We guarantee a same day response.  856-304-7348

Not available in all states.

Bonded Contracts – Show Me The Money! (Secrets of Bonding #139)

 Brought to you by…Secrets of Bonding is brought to you by Bonding Pros

Need a bond?  Talk to the Pros!  856-304-7348  www.BondingPros.com

Brokers protected.  Contractors welcomed.

Laurel and Hardy. Ben and Jerry. Bonding companies and money. They just go together!

Let’s take a look at the focus bonding companies place on money when providing Bid and Performance Bonds. It’s a matter of survival. If called upon, the surety hopes to complete the project with the remaining (unpaid) contract funds. They track a number of elements and there are critical milestones. Learn about them so you know what’s ahead.

Of course there is a significant financial evaluation of the applicant (the construction company), a subject we have written about extensively. Visit our index of article subjects. Here we will only talk about the bonded construction project.

An early money question is “how is the work funded?” Most bonded jobs are public work. This means the project is paid for with tax dollars. On private contracts, the work can be funded in a number of ways. For commercial building, the project owner may have a construction loan or set funds aside in an escrow account. In any event, the bond underwriter wants to be sure the contractor will be paid after they incur costs for labor and material. Not being paid could cause the company to fail and result in claims on all open bonds.

Regarding the new contract, the surety will ask:

  • How often will the contractor be paid?
  • Is a portion of the contract amount paid up front, immediately when the work commences?
  • Are there Liquidated Damages – a financial penalty assessed per day for late completion of the work?

Once the contract is underway, the surety wants to monitor the money:

  • Is the job proceeding profitably, and therefore headed for a successful conclusion?
  • Do the contractor’s billings correlate with the degree of completion? It can be dangerous when they get too far ahead by billing the job aggressively.
  • Are suppliers of labor and material being paid on a current basis (by the contractor / surety client)?
  • Is the project owner paying the contractor in accordance with the written payment terms?

Sometimes underwriting issues are resolved by using a “funds administrator.” This procedure is intended to enable the contractor to perform the work, while the money handling is performed by a professional paymaster. The paymaster pays all the suppliers of labor and material, plus the contractor. This procedure minimizes the possibility of claims under the Payment Bond.

When the project reaches a conclusion, there may be important final transactions:

  • Final payment – the contractor collects the last regular payment under the contract. The bonding company issues a consent for release of this payment. If there are any problems or issues, they may withhold such approval. Underwriters can require copies of lien releases (from suppliers of labor and material) to assure that everyone has been paid – to prevent Payment Bond claims.
  • Release of Retainage – the contractor now collects a percentage of the contract amount that was methodically held back (retained) as security for the protection of the project owner. Surety consent is often required for this, too. The owner will not release this money unless all the loose ends are resolved, referred to as a “punch list.”
  • Bond “overrun” premium – normally the surety is automatically required to cover additions to the contract amount (bond automatically increases.) Therefore, they are entitled to an additional premium for such exposure. If not collected during the life of the project, this would be a clean-up item at the end. Sometimes a refund is issued for an “underrun” (net contract reduction.)

Bonus Question: Why do some underwriters require premium payment in advance for Performance and Payment Bonds?

Answer: Unlike insurance, surety obligations (P&P bonds) are not cancellable. Therefore, if the underwriter doesn’t get paid the bond premium, they are still “on” the risk!

Conclusion

Surety underwriters strive to bond reputable, capable companies. But even the biggest, best contractors cannot avoid the financial aspects that pop up during the life of all bonded jobs.  Deal with them as they arise. Now you know what to expect.

Enjoy  this scene from Jerry Maguire (click): Show me the MONEY!!!  

Insurance Agents and Contractors: Love the “Secrets” articles? You’ll really love it when we solve your tough bonding problem! We have the markets and the know-how to succeed even when others have failed.  Call us with your next surety bond need.  We guarantee a same day response.  856-304-7348

Not available in all states.