Date Published: November 2, 2024
Here are 4 common reasons a bond request might be declined by a surety for a public works contractor:
- Weak Financial Performance:
- Insufficient Working Capital: The contractor may not have enough liquid assets to cover unexpected costs or potential losses.
- High Debt Load: A high debt-to-equity ratio can indicate financial instability and increased risk.
- Negative Cash Flow: Consistent cash flow problems can hinder a contractor’s ability to meet financial obligations.
- Inadequate Experience or Expertise:
- Lack of Relevant Experience: If the contractor lacks experience in the specific type of public works project, the surety may be hesitant to provide a bond.
- Poor Project Management: A history of poorly managed projects can indicate potential future problems.
- Overextension:
- Too Many Simultaneous Projects: Taking on too many projects at once can strain resources and increase the risk of default.
- Projects Outside Core Competency: Bidding on projects that are outside the contractor’s area of expertise can lead to difficulties and potential failures.
- Legal or Ethical Issues:
- Pending Litigation: Ongoing legal disputes can create uncertainty and financial risk.
- History of Fraud or Misconduct: Past instances of unethical behavior can damage the contractor’s reputation and make them a less desirable risk.
This is by no means the only reason a bond request may be declined. It’s important to note that sureties carefully evaluate each bond request on a case-by-case basis. Building a strong financial track record, maintaining a clean claim history, and demonstrating expertise in the specific type of public works project are crucial for securing surety bonds.
What to do If Declined for a Bond?
- First and foremost, listen to the reasoning of the surety for the declination. The bond underwriters are trained in pre-qualification. When a surety company declines a bond, at least consider that the reasons behind the declination may be valid. Take a breath, do a self evaluation and strongly consider that the position of the surety.
- If after consideration you still want to pursue the risk, tell your agent. While the top 5 sureties account for 70% of the surety premium, there are many other alternative markets. Working with a surety bond only agency like Surety1 can help you evaluate a potential bond request. The guidance and and surety expertise of the Surety1 team can help overcome these potential obstacles. Benefits of working with a surety bond only agency
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About the Author
John Page started his career in the surety bond industry in 1987.
He is a former Vice President of a top 10, national surety company and the founder and former president of Surety1.
Performance and Payment bonds, Bid Bonds, Public Works Bonds, bonds for contractors.
Surety1 was founded in 2003 and helps thousands of clients find the best prices on their surety bonds. We take pride in our work so that we can give you great service. Learn more about Surety1.