Although business management and performance are the major factors that will determine which contractors survive the downturn in construction, the size of the contractor also comes into play. As a rule, project owners are more likely to continue with larger developments because of their greater value, higher investment, and longer lead time. Smaller projects are easier to cancel, which makes smaller and midsize contractors (with work backlogs between $5 million and $100 million) more vulnerable to cancellation.
If you’re experiencing losses on a project, your first step should be to deal with overhead, liquidity, problems, and ongoing business concern. It’s also essential to communicate any problems to your insurance agent and surety company immediately! Because the surety has a strong financial interest in preventing you from default on your bond, it will leverage its relationship with the bond underwriter to help you work through these difficulties and reach a mutually acceptable solution that will keep you on the job.
However, a contractor withholding critical information about a problem situation from a surety would lead to a far different result. Concern about the contractor’s deteriorating financial condition – which makes it a riskier bonding candidate – might make the surety restrict its future capacity, leading it to make the contractor either bid on only smaller projects that pose less risk to the underwriter or postpone bidding on all projects until the business can clean up its balance sheet.
If you have any questions about working with your surety, please feel free to get in touch with the Bond professionals at our agency.