Building Relationships: How Contractors and Surety Professionals Can Navigate Economic Adversity Together

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For contractors and their financing partners, today’s economic environment is tough. Between high interest rates, inflated material costs, a long-term labor deficit, and anemic demand in the commercial sector, there are real issues raising anxiety in our field.

In lean times the business principles that can be forgotten during periods of fast growth and easy money come back into focus. Navigating tough economic environments like we’re seeing today calls for a return to close collaborative relationships, and the most successful of these will be defined by healthy, frequent, and direct communication.

The Opportunity in Adversity

For my construction clients, it feels like financiers of all stripes are more focused on bolstering their reserves than making investments, and that can be a tough pill for many to swallow. From the perspective of surety professionals, now is a chance to be more discerning about partners. The smartest among them will look past the terms of specific proposals to see the value in a collaborative future. There are great potential partners in the contracting and construction industry, and for many their reputation doesn’t yet reflect their potential.

The promising contractors and construction firms that I’m talking about are forthcoming with information, provide reports and analysis to partners, and take the same care with their back-office responsibilities as they do on site. If you’re looking to build a reliable long-term relationship, those are the makings of a solid foundation.

With money tight, contractors are extremely appreciative of the bond producers and sureties that choose to work with them. And, it may be anecdotal, but the contractors I know are typically the kind of people that repay the faith showed in them. In the industry today, issuers with the long-term in mind have a great chance to bet on winners, as long as they can spot them.

Communication is Key

I’m giving all of my contractor clients the same advice I’ll share here: on each project, work hard to ensure that everyone involved is on the same page. Reaching a common understanding is essential. It means that, when things go right, successes are shared and celebrated. Alternatively, when they go wrong–as they inevitably will at some point–you have a foundation in place to alert partners to issues and mobilize resources to rectify them.

A few tried-and-true communications tips are to:

Establish a schedule of regular meetings for everyone involved to touch base;
Ensure meetings feature informative data and analysis including, as necessary, the latest work-in-progress schedules, month-end balance sheets, income statements, and cash flow analyses; and
Create some method of communicating in the event of unexpected developments or emergencies.

Seek out the firms willing and able to apply the standards above and you can rest assured they’re great partners, or at least have a great advisor helping them achieve a high standard.

A Little Understanding Goes a Long Way

Of course, surety professionals have their part to play as well.

As mentioned, banks are keeping their money closer to the chest. For sureties, that may be most obvious when reviewing a contractor’s financials and seeing stubborn lines of credit. If contractors can’t increase their credit, they can get stuck in a cycle of stagnating growth. Sureties might want to keep this situation in mind and not be too harsh when seeing stagnation or alternative sources of financing, whether from private equity or emergent peer-to-peer sources.

Work Smart

Sureties typically get more involved in troubled times. That’s understandable, as they’ll want to do everything possible to protect the value of investments. But without the intimacy of being on-site, they can’t be aware of issues before their contracting partners are.

My advice to surety professionals? Make it clear that the fastest way for a contractor to lose credibility is to sit on an important issue. Press this point and ensure they know how to reach you to share information.

And, when the time comes that your client needs assistance, try to be creative and help any way possible. If necessary, connect them with other firms that might be able to provide additional labor or material resources, or offer advice and support as they navigate issues with a vendor. As long as you are working together toward a common goal, there’s a better chance of overcoming obstacles and 100% certainty of becoming better partners.

In Conclusion

We all know that it’s in the tough times that we test our mettle. And, it’s self-evident that we are all stronger when working together. Over the next few years, I expect that those who make perfecting collaboration their focus today will find themselves leading the industry tomorrow.

Joseph Natarelli, CPA, is Marcum LLP’s (www.marcumllp.com) office managing partner in New Haven, CT, and a member of the Firm’s Executive Committee. A specialist in accounting for construction contractors, Natarelli also serves as national leader of Marcum’s Construction Services practice, overseeing audit, consulting, and taxation services to construction clients ranging from start-ups to multi-billion-dollar international enterprises. He can be reached at [email protected] or 203.781.9710.