Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

After a recent meeting between a Rancho Mesa contractor client, the bond company that supports our contractor, and Rancho Mesa as the contractor’s agent, the bond manager sent me an email stating, “now that I have met with [your client], we are willing to increase their aggregate surety line of credit by $10,000,000. Thank you for setting up the meeting.”

In the world of surety bonding, the various financial information the bond underwriter will analyze includes the Balance Sheet, Income Statement, A/R & A/P Aging, Bank Line of Credit, Work In Progress Schedule, and the owner’s personal financial statement. This is to determine the level of single project and aggregate program credit line to support the contractor’s bonding. These items all represent “objective” processes the bond company will use to make their credit decision.

However, it is also important to introduce the bond company to several “subjective” processes to include in their decision making. During a direct meeting between the contractor and the bond underwriter, you may uncover positive items that might make the difference between a yes or no response for a project. Examples might include:

1. Relationships with a certain municipality or a general contractor (in the case of a subcontractor client).

2. Various production schedules that could enhance the profit on a particular project.

3. Equipment savings unknown to the underwriter, etc.

As a home office contract bond underwriter in the late 1980s, I was invited by an agent and our branch underwriter to fly to Atlanta and meet with a certain contractor before deciding whether to support a large project that would require a bond. After walking though the jobsite with the client and reviewing the various estimating schedules for this particular project, I came back with a sense that the contractor could support a higher level of bonding beyond what our analysis of the financial numbers would have allowed. Therefore, we approved the bid for bonding. Although the contractor client came in third on that specific project, we had laid the groundwork for a much larger program of support going forward.

We recommend that you schedule to meet your bond company on an annual or bi-annual basis. If you would like a better understanding of how this meeting might increase your bond line of credit, feel free to contact me, Matt Gaynor, at (619) 937-0165 to discuss ways to ensure your bond program is efficient as possible.