Surety Bonds???

[Anonymous]

Hey guys, I'm in the process of starting a new construction company after being laid off from my job (which was also in construction), I wanted to get some insight on Surety Bonds and their requirements.

Since I will be a new General Contractor I'm concerned with my ability to secure the proper bonds in order to compete in the market place.

I want to put my company in the position to take advantage of the stimulus package that is currently going on in Georgia to rebuild schools and roads.  However, I would need a bonding compacity of $15 to $20 million to be successful in securing these types of bids.

Any comments or suggestions would be greatly appreciated

[Anonymous]

$15 to $20 million?  Are you sure about those amounts?

Most government contracts do have surety clauses, with penalties if the job is delayed, etc.  But I would be very surprised to find out that you need to have a bond in an amount equal to or exceeding the total of project(s).

Most bonds charge a percentage of face value, for example 1% to 3%, depending on the type, risk and your assets and credit and background related to the bond (ie: construction).

If it were only 1% (which this is not only paid a single time, there would be a term with renewal), you are looking at $15,000 to $20,000 just to fund the bond.

What size of projects are you looking to contract?  What are the daily and other delay or faulty penalties.  Almost never would you face a 100% loss of the project "face value."

Have you spoken to any bonding and surety companies about this?

If I were to wager, I would guess you don't need more than $50,000 bond.

Message Edited by txjohn on 05-15-2009 04:26 PM

[tblank65]

truthfully not to destroy the hopes of a new construction co but if your looking to secure a 15 million dollar bond right of it wont happen unless you have sterling credit, atleast 20% of that requested bond in a business line, and 3 yrs tax return. ive been the GM of a underground Const Co for several years and its tough to get started in the 100,000.00 surety range..... 

[GregB]

John,

1% of 15-20meg is $150,000 to $200,000.

OP,

I am a consultant to 3 companies that do what you are talking about doing. I happened to read your post and then was at one customer, who just happened to have his bonding agent come in while we were speaking.

I asked him what I remembered of your question. I got a shocked look in reply. He said they would expect at least a low 7 average bank balance.

Today I was speaking with one of the principals of another who told me that they are starting to feel good about business and are only losing $20,000 per week. He said most street projects are being won at 20-40% under their cost.

[Anonymous]

---

@GregB wrote:

John,

1% of 15-20meg is $150,000 to $200,000.

OP,

I am a consultant to 3 companies that do what you are talking about doing. I happened to read your post and then was at one customer, who just happened to have his bonding agent come in while we were speaking.

I asked him what I remembered of your question. I got a shocked look in reply. He said they would expect at least a low 7 average bank balance.

Today I was speaking with one of the principals of another who told me that they are starting to feel good about business and are only losing $20,000 per week. He said most street projects are being won at 20-40% under their cost.

---

whoops....slip of the old decimal point

I seriously doubt that OP has any need for that size of bond.  I suggest he do some serious research on the bonding requirements of the contracts he is interested in.  Rather than having such a huge bond, I suggest having adequate bond to get the job, plus liability insurance (and maybe an umbrella).

Next would be the capital necessary to complete projects.  Takes some money or credit to extend the materials and labor.

I again would be highly surprised if more than $50k or possibly $100k for something bigger were necessary.  In the oil and gas markets in Texas, the maximum bond necessary for the largest operator (hundreds of well sites) is $250,000.  Minimum bonding for 10 sites or less is only $50,000.

I'm betting the OP is assuming an amount that is not required.  IMO.