While qualifying for performance and payments bonds is mostly based on the contractor’s creditworthiness, macroeconomic factors can and do play a role from credit tightening or softening, amount of work in the pipeline, access to capital, among others. As a contractor, it’s important to keep your finger on the pulse of the economy. At Surety 1, we are here to help play a small part.
The Association of General Contractors (AGC) released its annual outlook report for 2014 and the consensus is optimism. Contractors are more optimistic about 2014 than they have been in the last seven years, which was the beginning of the latest downturn in our economy. Construction was one of the sectors hardest hit by the great recession and one of the last segments to recover. While the outlook report covers several market segments, the following specific sections are particularly important to discuss with respect to bond programs:
- Public sector segments will stabilize or grow; Specifically, 79% of contractors polled feel highway construction and transportation projects will stabilize or grow, compared to just 21% that feel it will shrink. 75% of contractors feel public building construction will stabilize or grow. And finally, 76% of contractors predict school construction to stabilize or grow. The worst thing a contractor can do is not take advantage of a public works opportunity because they didn’t make bonding a priority.
- Credit is Softening; The ease of credit conditions probably have a lot to do with contractor’s optimism. The ease to secure credit lines, loans, working capital lines, etc. makes it easier for contractors to cash flow larger projects. The same softening of credit conditions is mostly true to the surety industry as well. There are many different bonding programs available to contractors, which is required for public works construction. Even with damaged credit, if the contractor has some cash there is usually a path to write performance and payment bonds.
- More Contractors expected to Purchase or Lease Equipment; While the report uses this as an indicator of optimism, and rightfully so, it’s important to consider buy/lease vs. rent from a bonding perspective. Not all construction companies are in the same position. Whether a startup or $50 million construction company, a contractor should consult their surety bond professional with matters of purchasing equipment. While it has a positive impact on the equity in the business, it may or may not be the best move for the contractor’s bond program due to the potential strain on cash flow.
This outlook is about what was expected based on what we see on a daily basis. To capitalize on as many projects as you can, one critical step is to make sure your bond program is in place. At Surety1, we are experts in this field. Contact us at 877-654-2327 for a consultation to be sure you are best set up for performance and payment bonds.
For the entire AGC report, CLICK HERE