The vast majority of owners and contractors honor their contractual obligations and do so promptly. It’s bad business not to. The ones that do not, threaten your business. A hung account receivable could leave a sizable hole in the current asset side of your balance sheet. Suppliers, shareholders, banks and bonding companies could therefore feel the impact.

Your surety leverages support levels based on a number of factors and financial metrics including how much working capital is in your company.

5 Pro Tips:

1 A receivable that is well overdue, or due from an entity of questionable solvency may not be viewed as current and thus could directly affect your capacity to access the surety credit you need for your business.

2 View the Surety Broker and the Surety as your partners in the business. Interests are aligned regarding prompt payment.

3 Tender bond documents to an unknown Owner include the “Financing Clause” as standard. The Financing Clause requires the Owner to furnish evidence that they have financing or funds committed to cover the costs of the project, before requesting performance bonds. Expect tough questions. The Surety does not mind being the one to ask. We are in this together and anything that protects you and your balance sheet is good for us as well. And quite frankly an Owner should expect those questions and diligence when awarding sizable construction contracts.

4 If you are a sub-trade, you can query an owner to see if you have recourse to a Labour and Material payment bond that the owner would hold in trust for your benefit. Surety Brokers provide guidance, and having a labour and material payment bond in place provides additional security from a third party surety that payment follows the terms of your contract.

5 What about for non bonded contracts?  When contracting with private parties or other contractors you don’t know, your first call should be to your Surety Broker. They are your business advisers in these matters, and are in the business of knowing who is who in the development and building industry. They have the means and the contacts to find out more and can help you before you sign that contract.

ConstructConnect - March 29, 2018