Surety Bond Quarterly Professionals in Surety Bonding
SPONSORED CONTENT FROM Liberty Mutual Surety
The benefits of using drones or unmanned aerial vehicles (UAVs) in the construction industry are well documented and their use is becoming more prevalent. But how can drones help contractors get bonded? Simply put, drones can positively influence one or more of the three C’s of surety underwriting (Character, Capacity, and Capital), which underwriters use to determine a contractor’s surety program.
Capital is the money and other financial resources that a contractor currently possesses or has access to from a financial institution or other source. Character largely refers to a contractor’s reputation in the marketplace and other intangibles which may factor into the surety’s belief that a contractor will fulfill its obligations under the contract. A contractor’s use of drones may improve the capital and character analysis, but a contractor’s capacity is most impacted by the utilization of drones.
Capacity generally refers to the contractor’s ability to perform current and future work. Underwriters look at many factors when considering a contractor’s capacity. These factors include level of sophistication (e.g., internal controls), current ownership and management, field staff, job performance (e.g., job profit trends), etc.
Drones can help deliver assurance into a contractor’s future capabilities by providing detailed visual insight on past projects. One of the first questions an underwriter asks when presented with a project to be bonded, especially one that is large or complex, is whether the contractor has completed a project of this size or type in the past. By using drones, contractors can present the surety visual milestones on past projects while highlighting similarities between those completed projects and the new bonded project at hand. Drones can assist in video production of field staff describing the project as it moves along, providing the surety with necessary purview into field staff experience levels. Contractors can use these videos as an opportunity to discuss unforeseen circumstances that arose on past projects and how they mitigated those issues. More importantly, the contractor can elaborate on how they will prevent those issues from arising on future projects. These drone videos can ultimately provide the surety with valuable insight into a contractor’s capabilities and level of sophistication.
A contractor’s use of drones can greatly increase ownership and executive management oversight on all projects within their portfolio. Using drone footage can assist management generally, but it becomes even more important on projects that are out of territory or require cumbersome travel. When a general contractor or subcontractor has exterior or site responsibilities, drones can assist in ensuring field quantities are accurate. The drone visuals can be another tool to gauge actual completed work in the field, which can impact schedule requirements and internal job cost reports. Ultimately, this increased level of ownership and executive management oversight can help keep projects on track and within budget. More consistent project oversight is a proactive approach that can help contractors get ahead of issues that may arise. They are therefore better positioned to avoid any drastic swings in profit
margin which is a key metric evaluated during the underwriting process. Management’s use of this tool is another factor that demonstrates underwriting capacity to the surety.
Drones can be a significant tool in a contractor’s relationship with other stakeholders.
Whether it be with existing or future owners, the use of drones gives a contractor the ability to improve communication through the utilization of visual project updates. From the surety underwriting perspective, strong relationships with project owners are essential to a contractor’s operations (i.e., character), as they can lead to future awards, and ultimately additional capital which looks favorable during the underwriting process.
In summary, when contractors use drones in the field, they are providing sureties with better data, knowledge, and insight into the project. More insights mean more informed underwriting decisions and potentially higher capacity, which benefits contractors as it enables them to take on more jobs and successfully grow their business.
