Date Published: January 18, 2016

A surety bond is a product that ensures the obligation of one party is being fulfilled for the benefit of another party.  In the construction arena, when bonds are required they are referred to as bid, performance, and payment bonds.  It makes sense that those contractors who do business in the public sector and rely on performance and payment bonds to fuel its company, would have an interest in the yearly construction outlook for the industry.  Every publication I’ve read, along with gauging the general pulse of my existing clients, point to construction growing in 2016.  In the public sector, which is by and large when performance and payment bonds are required, the general consensus indicates it will remain flat or grow slightly from 2015.

Bonding for Construction
The 2016 Construction Outlook is Bright!

The Dodge Outlook Report, a respected and leading provider of construction analytics and forecasting, predicts total United States construction starts for 2016 will rise 6%, which is down from its 9% and 13% gains in the previous two years.  It also predicts public works growth will be flat, though the new bill known as Fixing America’s Surface Transportation Act (FAST Act) is expected to pass, which would result in a rise to public works construction starts late in 2016 and into 2017.  The FAST Act is intended to create long term funding for transportation.

FMI, a leading management consulting firm in the engineering and construction industry, predicts 8% growth in 2016. Like the Dodge Outlook Report, FMI predicts the FAST Act will help boost highway and transportation spending.

Finally, the Associated Builders and Contractors organization (ABC) also predicts construction to grow in 2016. ABC projects 7.4% growth in nonresidential construction and 5.5% growth in the public sector. In addition to these statistics, echoed by the other predictors, construction confidence has increased with respect to both sales and margins.  The biggest concern most contractors have is the lack of skilled labor and personnel.

Contractors: Take Advantage of a Strong 2016

As a surety professional, I’ve seen this too many times.  A contractor who works so hard to fill its pipeline is finally presented with an opportunity to bid or be awarded a job that requires a bond.  The only problem is that the contractor failed to be prepared to provide the bond.  As a contractor or builder, many factors are outside their control.  The economic climate is outside their control. As is policy changes, labor pool, or the number of competitors bidding against them on projects.  What is not outside a contractors control is to be ready from a bonding standpoint if and when a bond is needed. One should best position his company to take advantage of what appears to be a strong 2016.  Here are my suggestions for a contractor reading this post.

  1. Contact your bond agent to discuss 2016.  Hopefully this was already done as part of the tax planning meeting each contractor already did with his CPA.  If not, it’s not too late.  Contact your agent with your plans and needs for 2016 to make sure it aligns with the bond program you have. Produce all the account updates the agent requests to ensure you are ready to go.
  2. Work with a surety professional, not just your insurance agent.  A surety bond is part of the insurance code in each state, and that is where the similarities end.  Having your insurance agent also servicing your bonds as a compliment is doing a disservice to your company.  A surety professional should specialize in bonding, and have the important relationships with surety companies needed for the growth of your company.
  3. Engage a bank to secure or increase a business line of credit.  While your surety agent can advise what size you need, if you do not have a line you should start the process. As the saying goes, a banker will lend you an umbrella on a sunny day, not a rainy day.
  4. Hire a construction oriented CPA. It’s 2016 and you likely already have a CPA started on your return, but it’s not to late to align your company with a CPA that truly specializes in construction. From tax planning, to financial reporting, to help with your company’s internal controls, a construction oriented CPA is imperative.

Luck happens when preparation meets opportunity.  Preparing your company by selecting the right bond agent, banker, and CPA, along with active and open communication, will allow you to seize opportunities in 2016.

The post 2016 Construction Outlook Positive: Get Bond Program Ready appeared first on Surety1 Bond Line.

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