Rancho Mesa's Alyssa Burley and Matt Gaynor, Director of Surety with Rancho Mesa talk about strategies to open capacity for a bond program.

Show Notes: ⁠ ⁠⁠⁠⁠⁠⁠Subscribe to Rancho Mesa's Newsletter⁠⁠⁠⁠⁠⁠

Host: ⁠⁠⁠⁠⁠⁠Alyssa Burley⁠⁠⁠⁠⁠⁠

Guest: ⁠⁠⁠⁠⁠⁠Matt Gaynor

Editor: ⁠⁠⁠⁠⁠⁠Jadyn Brandt

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

© Copyright 2024. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

Alyssa Burley: Welcome back, everyone. My guest is Matt Gaynor, Director of Surety with Rancho Mesa. Today, we’re going to talk about strategies to open capacity for a bond program.

Matt, welcome to the show.

Matt Gaynor: Thanks Alyssa, always great to come back to the studio.

AB: We’re happy to have you.

Now, most of our contractor bond accounts are provided a single bond/aggregate capacity program to determine the size of projects they can bid and the amount of capacity that is available in the program for future projects.

So, what is the most effective way for a contractor to ensure they have the bond capacity needed to bid projects? 

MG: The most effective way to ensure you have available capacity for an upcoming bid is to communicate with your bond agent well in advance of the bid date to give you the best opportunity that the project will be approved by the bond company. On certain occasions, an upcoming project may put you over the top of your approved capacity. The earlier you communicate with your agent, the better.

AB: I can see this being an issue. What happens in that scenario?

MG: After talking with our client and getting all the information in an upcoming project, this is the time your agent must work hard on your behalf to represent to the bond company the “why” this project makes sense to add to the program. 

AB: Yeah, that makes sense. The bond company wants to ensure the contractor isn’t over extended. So, what strategies do you recommend to make this happen?

MG: First, prepare a work in progress schedule on a quarterly basis and provide updates as work progresses to give your bond agent the best estimate of your cost to complete as of a certain period. This is important because the bond company will allow additional runoff to subtract from your current backlog to free up capacity prior to the actual start date of the new project.

Next, when submitting your bid request, include a job cost breakdown on the new project and list the percentage of labor, materials, equipment, subcontractors, overhead and profit.  Provide additional explanation of any key elements (for example, if a certain subcontracted trade represents a large portion of the project) and the risk transfer protocols you will use to pre-qualify this particular subcontractor.

Then, have a status report completed by the owner whenever a bonded project is completing. Your agent can provide you this document. The bond company uses this information to remove that project from your backlog.

Also, the contractor might have a discussion with their bank to determine if they can increase their limit of credit to ensure available cash in support of anticipated costs during the initial few months of the new project.

And finally, consider loaning personal money to the company for a short time period to provide additional working capital or equity. The loan may need to be subordinated to the bond company to ensure it is not paid back until certain conditions are met.

AB: Ok, so those strategies seem—for the most part—to focus on keeping the bond company informed. So, just like with most relationships, the contractor/agent/bond company relationship works best when there is clear communication. It’s a win-win for everyone involved.

MG: That’s right. Both the agent and bond company only generate income when they issue bonds to support the contractor’s projects. Therefore, all parties involved want to try and find a way to allow the contractor to add good projects to their bonded backlog.

AB: All right, well Matt, if listeners have questions about their bond program, 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: All right, well Matt, thank you for joining me in StudioOne™.

MG: Thanks for having me.