Lower Construction Subcontractor Surety Bond Costs with These 5 Tips
Mar 27, 2018 | Construction Management, Trending | 0 comments
You might flinch at the prospect of getting a construction subcontractor surety bond simply because people will scrutinize your business. The payoff though is a boost to your company’s reputation that tells clients and potential clients that you can deliver what you promise.
By Eric Weisbrot
A construction subcontractor surety bond will open doors for any subcontractor. They provide a guarantee to the job owner that work will be done to standards and regulations. If the project doesn’t meet the terms of the contract, a surety bond pays the claim on behalf of the construction contractor. However, the contractor is the one ultimately on the hook for paying the claim. There are several reasons why a construction subcontractor surety bond is a big expense. Fortunately, following the steps below ensures a cost-effective bond every time.
Guard Your Choice
You can get a construction subcontractor surety bond from many different companies, but not every provider works the same. Partnering with a surety agency that taps into a large pool of bond providers is the best bet. This offers more choices for well-priced bonds. A strong surety agency will not only have several options of bonds, but it also provides resources and claims help for construction subcontractors when they need it most.
Improve Your Credit
Personal credit plays a role in how much a surety bond costs. The following factors negatively impact the price of a bond:
- Poor payment history
- High credit utilization rates
- Accounts in collections
- Bankruptcies
- Foreclosures
- Credit report errors
Improving personal credit by paying bills on time, responsibly using credit, and ensuring there are no errors in reporting reduces the price of a surety bond. This is because providers price bonds as a percentage of the total amount of the bond. The greater the risk an individual poses to a bond provider based on financial history, the higher the percentage he or she will pay. As credit improves over time, the percentage price of the bond goes down.
Be a Construction Business Pro
Being a construction subcontractor requires some business know-how. That includes adequate management of the business finances. Understanding which customers owe for work performed and in what amount is a critical factor in strong management. Also, having clear records of business assets, liabilities, and successful work history is beneficial. Each of these components give a surety bond company the full picture of the business. It helps lower the cost of a new bond. Several resources exist for business financial management and record keeping, and successful construction subcontractors use them early on and with regularity throughout their business operations.
Clear Up Legal Problems
Tax liens and court judgments can have a drastic impact on credit, both for the business and the individual subcontractor. Just like working to improve negative marks on a credit report, resolving tax liens and judgments goes a long way in boosting your overall risk profile. The information for managing tax liens and judgments is found in your credit report from one or all three of the credit reporting agencies. Additionally, this resource offers some insight into how to get them removed.
Avoid Claims
One of the best steps construction subcontractors can take to reduce the cost of surety bonds is avoiding claims whenever possible. When a customer shows signs of filing an official claim against a bond, you must proactively resolve the issue. The surety company may be able to provide some assistance in this arena. However, it is the contractor’s responsibility to build strong relationships with customers from the start. Having a history of successfully completed projects is necessary for keeping surety bond prices low.
Eric Weisbrot
Chief Marketing Officer of JW Surety Bonds
With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the JW Surety Bonds blog.