Rancho Mesa's Alyssa Burley and Director of Surety Matt Gaynor talk about single and aggregate surety bond limits.

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Director/Producer/Host: Alyssa Burley

Guest: Matt Gaynor

Editor: Lauren Stumpf

Music: "Home" by JHS Pedals, “News Room News” by Spence

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Transcript

[Introduction Music]

Alyssa Burley: Hi, this is Alyssa Burley with Rancho Mesa’s Media Communications and Client Services Department. Thank you for listening to today's top Rancho Mesa news brought to you by our Safety and Risk Management Network, StudioOne™.

Welcome back. My guest today is Matt Gaynor, Director of the Surety Department at Rancho Mesa. Today, we’re going to talk about single and aggregate surety bond limits. Matt, welcome to the show.

Matt Gaynor: Thanks Alyssa, great to be back in the studio.

AB: When you work with bonding carriers on surety credit programs for our contractor customers, traditionally, the bond company will put into place both single and aggregate bond limits which provides our clients certain parameters when they are considering a maximum project size for bonding purposes. Will you explain single and aggregate bond limits for our listeners?

MG: Sure, the single limit’s a guide the contractor can use on a per project basis as they consider various projects to bid or negotiate.

The aggregate bond limit is the total of all current projects using a “cost to complete” calculation. The cost to complete would be the estimated costs on a project less the cost to date.

So as an example, a contractor may have a $5,000,000 single bond limit and a $20,000,000 aggregate bonding program.

AB: When a contractor is developing their bonding program and looking at their limits, what should they consider?

MG: The most important determining factor is the contractor’s fiscal year-end financial statement. That’s why we stress to our clients make sure the December 31 financial statement looks as strong as possible. And then another consideration would be, what’s the largest project our contractor has competed to date.

AB: Can a contractor potentially bond projects that exceed their single bond limit?

MG: That’s a good question, an important one to understand. These bonding limits are not set in stone. The bond company will often raise the single and aggregate limit if the right type of project presents itself.

Here’s a good example. We include the bonding limits when we prepare a bondability letter for our client. If you are looking at a project that might exceed your single bonding limit, be sure the required limit listed is sufficient to support the projected amount. For example, if your limit is typically $5,000,000 and the project requires a bondability letter for a $6,000,000 job, it’s important that you secure pre-approval from both your agent and the bond company to increase the amount of the single limit on the letter.

AB: Okay, if a contractor is bidding a job, they’ll need to make sure that their single limit will cover the bond for the individual project and make sure that all their projects combined don’t exceed their aggregate limit, or they’ll need to get pre-approval from their agent and bond company to increase the limits before they need a larger bondability letter.

Is it wise to ask for higher limits so you don’t have to worry about changing them was you’re bidding projects?

MG: That’s an interesting question. Bonding limits listed on a letter are often just a guideline reflecting the normal size of the projects our contractor clients usually bid on. Based on their financial ratios and project history, some clients, for example, will qualify for a $10,000,000 limit but only list $2,000,000 because they rarely consider projects over that amount.

AB: That makes sense. Matt, if listeners have questions about their surety bond limits, what's the best way to get in touch with you?

MG: I can be reached at (619) 937-0165 or mgaynor@ranchomesa.com.

AB: Matt, thank you for joining me in StudioOne™.

MG: I appreciate the opportunity.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information, visit us at ranchomesa.com and subscribe to our weekly newsletter.