surety secrets

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 #151: It’s Time For…Timing!

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.

With Surety Bonds, Timing can be critically important.  There are certain things that must happen first.  You can’t get them out of order. Here are some examples.  Do you know which comes first, and why?

Cover the answers with a piece of paper as you scroll down. (Paper is white stuff people used to write on. Really!)

  1. Bid Bond / Performance Bond
    • OK that was an easy one. They get harder. Bid bonds always come first – if there is one.  Not all performance bonds are preceded by a bid bond. Negotiated projects would be an example.
  2. Bond execution / Indemnity Agreement execution
    • The Indemnity always comes before the bond. It is the promise to pay back the surety in the event of a claim / loss. Sureties want this protection in place before they assume any risk.
  3. Surety Consent to Final Payment / Obligee Status Inquiry Form
    • The Status Inquiry form comes first. It is the obligees statement that the work is acceptable.  The surety requires to see this before agreeing to release the final payment.  If there are unresolved issues, the contractor must address them before the last contract funds come over. (That’s true motivation!)
  4. Payment Bond Release (exoneration) / End of Lien Period
    • Since the bond guarantees the payments that may be owed during the lien period, the time for liens must end before the bond is concluded.
  5. Contract Acceptance / Maintenance Bond Issuance
    • Sureties want the contract accepted first and the P&P bond released before assuming the risk associated with a Maintenance bond. Some obligees require issuance of the maintenance bond simultaneously with the P&P bond at the start of the project, but underwriters resist this.
  6. Bid Results / P&P Bond Issuance
    • Underwriters want to evaluate the adequacy of the contract price prior to bond issuance. They do this by evaluating the bid results, comparing the various proposals from different companies.  In some cases, the bid results are not published, in which case they have wing it!
  7. P&P Bond for Started Project / All Right Letter
    • The All Right letter is the obligee’s assurance that there is not already a problem on the contract that will result in an immediate bond claim. Sureties require a clean bill of health before bonding a started project (unless the degree of completion is very low i.e. 5%).
  8. Award Letter / Notice to Proceed
    • Award letter comes first, then the contract signing and Notice to Proceed is issued. Then “Grab ya hamma!”
  9. Tough Bond Problem / Call Bonding Pros!  856-304-7348
    • You can call us for discussion or general info any time. However, when a tough bond problem arises, that’s your cue to call in the experts.  Getting with us is as easy as making that call.  We have the markets and the expertise.  Bonds are all we do – since 1972!

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 #150: Surety Bonds Are Exactly Like Insurance

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.

Surety Bonds are exactly the same as Insurance.  They are like… twins!

If you are a follower of the Secrets blog, this statement may surprise you.

Go all the way back, way back to article #1 in this series published in February 2014.  It was titled “Bonds Are Not Insurance.” OK, if you read it, so when did they start being like insurance?

Question: Does this sound familiar?

Your contractor client calls up and tells you they have just won a new contract and are ready to sign. “We need to provide an Insurance Certificate.”

What would be your very next comment? Would you say “I’ll transfer the call to Bertha who issues our certificates!” Or would you ask for a copy of the insurance specification and the new contract so you can review them?

You’d probably do the latter. You need this to determine if there are any special requirements, onerous clauses and to determine the coverage levels needed.  Before issuing the certificate, you may need to modify their program to be compliant.

Let’s compare this to Surety Bonds. When an agent colleague sends over a bond request form (or bond app), we always ask for the written bonding requirements, any mandatory bond forms and a copy of the contract if it is available.

We do this for exactly the same reason as with insurance. We want to understand what the customer needs, and be sure what we provide fulfills the requirements. It’s just good business.

Admittedly, bonds are still very different from insurance – except for this common underwriting step. You agree?

Now let’s go a step deeper.  If we will always review these supporting documents to accompany each bond request, what are we looking for when we get them?  What are the hot buttons?

Bond Forms

It is important to note if bond forms are included in the specification.  If they are, you must determine if they are mandatory to use, or if equivalent or standard forms may also be accepted.

In contract surety, all bid bonds are pretty much the same.  However, Performance and Payment bonds can vary great depending on the obligee (protected party).

For example, on all federal projects, the bond forms are the same, and using them is mandatory.

The American Institute of Architects (AIA) has developed a standard set of bond forms that are well accepted by all parties and commonly used in construction.  You may find these are stipulated.

When it comes to private contracts, such as a subcontractor working for a general contractor, the bond forms can be anything.  It might say AIA forms, or they might invent their own P&P bond form that is mandatory. You need to know!

Surety Credentials

The standard for the bonding company could be as simple as “the surety must be acceptable to the obligee.”

However, there can also be licensing and rating requirements that must be adhered to.  A license issued by the local state insurance department could be required “a bonding company authorized to do business in New Jersey.”

A minimum size and strength rating from a rating bureau like A.M. Best could be indicated.

Along similar lines, a surety listed on Circular 570 (a federal approval list) is not uncommon.

Conclusion

There is no way to assure your client has exactly what they need other than to review the requirements. Failure to provide exactly what a client needs can lead to embarrassment, loss of a contract and one disappointed “former” customer. 

Bonds are NOT the twin of insurance, but the underwriting has some common elements, namely the need for certainly when providing the correct coverage issued by an appropriate carrier.  Get the supporting documents and read them. Discussion with the client and underwriter may be appropriate. 

In both bonds and insurance, this procedure protects your E&O, assures your professional performance and leads to stronger client relations.

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 # 142: Make Bid Bonds Great Again!

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.

You used to love them.  They were so easy.  Now they are in dollar amounts and percentages, sometimes with a limited maximum value.  They can be electronic or digital.  Sometimes a letter is required instead.  Sometimes nothing is required instead! There may be a single or annual charge for it or maybe it is free! It’s outta control…

So here is your chance to catch up with everybody’s favorite: The fun and fascinating world of Bid Bonds.

The Basics
These instruments accompany a contractor’s proposal during the acquisition process for a new project.  This is routine on public work, such as federal state and local municipal contracts.  The procedure may also be used on private projects at the contract owner’s discretion.

The bond guarantees that, if awarded, the bidder will sign the contract, furnish the required Performance and Payment Bond, and commence with the work – or – pay the difference between their bid and the next higher bidder (subject to the maximum dollar value of the bid bond.)

Cost
Usually free although the surety is entitled to charge for them.  Typical charges could be an annual bid bond service fee or a per bond charge.

Underwriting
The decision to issue the bid bond is based on the underwriter’s willingness to provide the related P&P bond, because that is the real money transaction. The decision is NOT based on the dollar value of the bid bond.  Rely on the fact that the underwriter will not provide the bid bond if they do not feel they can support the final bond.

Bid Spreads
If the bidder is more than 10% below the next bidder without a plausible explanation (we have a special machine,  already have materials, are already working next door, we’re super fabulous, etc.) the surety could decline the final bond, resulting in a bid bond claim.

Alternative Forms of Security
In addition to a bid bond, proposals may also be secured using a cashier’s check or irrevocable letter of credit, depending on what the project owner (Obligee) is willing to accept.

Percentages
The Invitation or Bid Solicitation describes the proposal requirements.  It will state if a bid bond is required and the amount.

The bond value is often expressed as a percentage. Example “20% of the attached proposal amount.”  This is convenient because the underwriter doesn’t want to know the actual bid amount (to preserve the bid confidentiality).  It is the best way to express the exactly correct amount when typing the bond in advance.

Capped
Because the percentage bond actually has an unknown dollar value at the moment it is executed, language is sometimes added establishing the most it can be worth (to prevent a wildly high amount the underwriter didn’t expect).  Example, “10% of the attached bid, not to exceed $100,000.”

Fixed Penalty
“Bond Penalty” is the term used to express the bond dollar value.  A fixed penalty bond has a stipulated amount, regardless of the bid.  Example, “Maximum bid bond amount required: $20,000.”

Surety Letter
Some owners choose to require a letter from the bonding company, but no bond. Federal projects are handled this way at times.  The letter talks about how much they love the client and the contracts they are willing to bond.

Consent of Surety
This letter is the surety’s written promise to issue the P&P bond if the contract is awarded.

Electronic
A scanned copy (pdf) of the executed bond may be acceptable for an online bid.

Digital
Some state departments of transportation use this.  The surety registers with the obligee in advance and the bid bond is “filed” online using a unique identification number.

No Free Lunch
If you default (cause a bond claim), the surety will come after the contractor, it’s owners and spouses for recovery.  Remember: Bonds are not insurance.

Funky Land
Now some of the weird stuff:

  • You may encounter a bid bond requirement, but no final bond (P&P bond) to follow
  • Can also have the opposite: No bid security required but a final bond is needed
  • No! You are not required to use the same surety for the bid and final bonds – although the bid bond provider fully expects to write the final bond and may hunt you down and kill you. (Just kidding!!!)
  • Yes! If you obtain a bid bond under the promise to provide collateral, you are allowed to get the final bond from a different surety that is not demanding collateral. (But you face the hunt and kill thing again)
  • When you acquire a project using a Consent provided by ABC Surety (their promise to provide the bond upon award of the contract), you are not prohibited from taking the final bond from XYZ Surety. However, good protocol dictates that you remain loyal to those who enabled you to acquire the job (meaning ABC).

Make Bid Bonds Great Again
So there you have it.  These instruments are fussy and sometimes complicated.  It is imperative that they be executed correctly and filed on time or it can cause the bid to be thrown out (loss of contract.)  This always makes people very crabby (Read: LAWSUIT).

The key is to review the written bonding requirements as described in the bid advertisement. Use any mandatory bond forms that are stipulated and double check the correct execution and typing of the document including name spelling, job description, project identification details and the correct bid bond amount.

Now that you know, you can start to love bid bonds again!

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 #134: How to AVOID the T-List

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.

cat-hiding-in-snowFamiliar with this?  “T-List” is the bond vernacular for the Treasury List or more formally: Circular 570. The document is produced annually and maintained by the Bureau of Fiscal Service, US Department of Treasury.  Why do some contractors want to avoid it?

Their web page says it is the Treasury’s “Listing of Certified Companies”  https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570_a-z.htm

The purpose of the list is to establish a pool of surety companies that the government finds acceptable to bond federal projects.  Having this group established in advance avoids the need for federal contracting officers to vet the bonding company during each contract award process.  It helps speed things up except for one problem: Not all bonding companies are on the list.

Why is this?  Does it mean they are not strong or ethical?  Does it mean their bonds are no good?  Not necessarily.

Remember, when it comes to corporate sureties, they are subject to state regulation even if they are not on the T-List. So not being on the list could mean:

  • The surety has applied for approval and is still being processed
  • They applied and were declined or deferred to a future date.
  • They have chosen to not apply to be on the list.

Point is – it does necessarily mean anything bad.

For some contractors, they may have a surety relationship in place, but when they go after a federal job, they learn that their surety is not T-Listed.  Must they avoid federal work or find a new surety that is on the approved list?

dog-hiding-in-a-drawerNo…. It turns out there are situations in which the federal government does not require a T-Listed surety.

For construction contracts from $35,000 to $150,000, the government can accept alternative methods of payment protection other than a surety bond. These are:

  • Irrevocable Letter of Credit issued by a commercial bank
  • Tripartite Agreement managed by a federally insured bank
  • Certificate of Deposit
  • Deposit of acceptable securities (Reference F.A.R. section 28.102-1)

For work performed in a foreign country, the bond can be waived entirely if the contracting officer concludes it is impracticable for the contractor to provide a surety bond. (Reference F.A.R. section 28.102-1)

Individual Surety bonds are an alternative to corporate sureties and they are never on the T-List. (Reference F.A.R. section 28.201)

Other forms of security may be used such as

  • United States Bonds or notes
  • Certified or Cashier’s Checks
  • Bank Drafts
  • Money Orders
  • Currency
  • Irrevocable Letter of Credit

Conclusionhiding

Being T-Listed is not always mandatory for federal contracts, although it is in the majority of cases.  Nevertheless, it is interesting to note that there are a series of exceptions, and these are always in play.

Armed with this info, contractors can go after federal work while avoiding the need for a T-Listed surety, or (heaven forbid!) any surety at all.

Insurance Agents and Contractors: When tough bonding situations arise, we have the markets and the know-how to succeed even when others have failed.

Give us a call today!  856-304-7348

Not available in all states including Idaho.

Secrets of Bonding #132: Inside the Underwriters Skull

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.

We’re going on a journey.  We will crawl inside the surety bond underwriter’s skull and see what’s in there: Maybe not much.

To succeed in acquiring bonds, it is helpful to understand the process and motivation of the decision makers.  Here we go.

Agency vs. Bonding Company

When new clients call us to get their bond account resolved, we always ask “Do you currently have a bonding company?”  The answer is often something like “Yes! The Acme Insurance Agency.”

So the first thing to understand is the difference between the agent (or agency) and the bonding company (aka the surety, the carrier, the company). Typically, the agent (and agency) is your local retail salesperson.  Their job is to find new prospective clients, develop their info, analyze and submit it to the underwriters for review, and provide ongoing customer service. They normally are paid by commission and do not hold any of the risk on the bonds.

The Surety (bonding company, the carrier) holds the risk.  They collect the bond premium.  Their employee, the underwriter, is the decision maker who determines if the bond will be approved, and on what terms. 

Now that we have identified who the decision-maker is, let’s talk about process and motivation.

The Process – Underwriting Authorityskull

In order to assure a consistent and controlled decision-making process, bonding companies issue Letters of Authority to each underwriter.  These instructions cover two areas. 

  • #1 prohibited transactions. Don’t do any of this stuff.  It may include types of bonds and different scenarios that are unsupported by reinsurance, or are incompatible with the company’s risk appetite.
  • #2 transaction size. This covers the dollar value of transactions.  It may say “You can issue the following type of bond, up to this maximum amount $_______.”

Motivation

Underwriters are paid a salary and in many cases, a production bonus.  The bonus is based on the volume of profitable business they produce.  They are expected to operate faithfully within the company’s underwriting guidelines.  Annual production goals are set with a reward if they are exceeded.

If you have a feel for it now, let’s put on our underwriter hats and look at some situations.  As an underwriter, will you move these to the top of the stack?

Situation 1: This new applicant does not normally need performance bonds.  In fact, after three years in business this is their first one.  You are told “this shouldn’t be a problem” because the contract / bond amount is only $15,000.

Situation 2: Maintenance Bond request on a completed contract.  A “no brainer?”   The performance bond was issued by another surety, but the client says they don’t want to use them for the Maintenance Bond because of their slow service.

Situation 3: The government is offering a computer services contract.  The vendor must provide a performance bond.  The contract has two optional one-year extensions at the sole discretion of the government.  The surety must file notice of cancellation 30 days prior to anniversary in order to get off the risk.  Failure to bond the extension (with a new surety) can result in a claim against the expiring bond.

Love any of these?  We don’t either.  Why are they undesirable to the underwriter?

Remember the basics:  Underwriters are looking for profitable transactions they can process efficiently.  Case #1 is simply not rewarding enough.  Too hard to set up a new file just to write one very small bond, and maybe that’s the last one for the next three years.

#2, looks like there is a complicated underwriting situation.  Could be a performance bond claim, or bad financial info that is causing the incumbent surety to back away.  People don’t change bonding companies just for fun.

#3, underwriters cannot proceed if their exposure is undefined. Since the potential bond term is undefined (and beyond the underwriter’s control), it would be impossible to comply with the underwriting authority.

Conclusion

Underwriters do not embrace all transactions equally.  So how do get your bonds approved?

  1. Start with a conversation. This can give you an idea of how to proceed efficiently: “Here’s what I got.  Can you help me?”
  2. Good file accessibility: Make the info easy to process.  Does the underwriter want pdfs emailed for review?  Then don’t send a paper file or one big jpg (a picture file).
  3. Proper forms: Does the underwriter require their own application?  Use it!  Answer ALL the questions.
  4. Be Cooperative: “Are you sure you don’t have that already? We sent it on Monday.” That always amazed me. If the underwriter requests info, don’t ask them to justify that they need it.  Provide it – and more than once if necessary.

Remember, even if the process is difficult, underwriters must approve business to remain viable.  Make your bond easy to process and easy to approve. Make it the file they want to work on next.

Insurance Agents and Contractors: When tough bonding situations arise, we have the markets and the know-how to succeed even when others have failed.

Give us a call today!  856-304-7348

Not available in all states including Idaho.