Surety Agents and Sureties Can Help Small Contractors Manage Risk


By Jean Feingold

“Many contractors often don’t think about getting prequalified for surety bonds until they need one, especially smaller contractors,” noted Liberty Mutual Surety Contract Bond Manager Paul Jorritsma. That’s unfortunate because working with a surety agent and a surety from the earliest stages of planning a new project can mitigate risk.

Large contractors use specialized staff members and outside consultants to evaluate risk. Small contractors have to do the same evaluation but with fewer people. Surety agents and sureties can fill that gap. Before bidding on or accepting a contract, contractors need to understand the terms and conditions in a contract. “Contractors are experts in their trade but may have varying experience levels in other business aspects,” Jorritsma said. That could include knowing how surety bonds can help them, taking advantage of work-in-process schedules, collecting money owed to them, the benefits of trade associations, and what having a good bookkeeper can do for them.

Every contract has inherent risk, but small contractors especially can be burned by badly written contracts. Surety agents and sureties can advise small contractors about troublesome contract clauses and bond form language.  

Force majeure clauses should be specific to the locale and nature of the project rather than boilerplate. The desired choice for a project delay clause would be liquidated damages, with a set daily penalty. Both actual damages, requiring the contractor to pay for total actual losses, and consequential damages (payment of both actual loss and lost business) should be waived.

Delays can also cause labor shortages, as workers needed on the next job might still be working on the current one. Contractors of all sizes must plan effectively and manage projects well to avoid this, both when bidding on jobs and after they begin.

To be assured of having needed materials available at the expected price, contractors must develop good relationships with suppliers. Doing this is simple – pay bills on time. While large contractors might get better prices buying in bulk, small contractors that pay timely and invest in getting to know and understand their suppliers get good prices, too.

“Having an unsafe workplace can sometimes negatively impact small contractors more than larger ones,” Jorritsma said. “That’s because higher workers compensation insurance premiums can make a small contractor less competitive in bid situations. Contractors with a culture of safety have a good safety program. They share their workers comp premium savings with employees and give out safety rewards.” 

“Small contractors as well as larger ones can benefit from sureties and surety agents who want to partner with them,” Jorritsma said. “These experts are knowledgeable about the different types of contractors and what is typical in their trades for their company size. They can help contractors grow and progress. We advise contractors about avoiding risks and help them learn what they need to know instead of them figuring it out experientially.”

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