PREQUALIFICATION

The surety underwriting process is focused on prequalifying the contractor. It takes time to develop and present data, address questions the surety may have, and verify information. Before issuing a bond, the surety must be fully satisfied that the contractor is of good character, has the experience that matches the requirements of the projects to be undertaken, and has, or can obtain, the equipment necessary to perform the work. The surety also wants to make sure that the contractor has the financial strength to support the desired work program, and has a history of paying subcontractors and suppliers promptly. It will want to see that the contractor is in good standing with a bank and has established a line of credit. In short, the surety wants to be satisfied that the contractor is a well-managed, profitable enterprise that keeps promises, deals fairly and performs obligations in a timely manner. It is important to realize that each surety company has its own underwriting standards and requirements.

But there are fundamentals that are common to underwriting surety bonds, and understanding these fundamentals is helpful to a contractor seeking surety bonds for the first time. If you understand what's involved in getting bonds, you can weigh the time and expense of obtaining surety bonds against the benefits of being able to perform bonded projects. Your decision to seek surety bonds should be based on long-term considerations. To obtain bonds, even some changes in the way your firm does business may be necessary and these changes could have certain costs.