We get calls almost every day with the simple questions on performance bonds, “What do you guys look for” or “How do I increase my bonding.” While bonding can get complicated on different levels, the simplest answer is that performance/payment bonding credit is based on the surety industry accepted three “C’s.” They are Character, Capacity, and Capital. Each characteristic has several factors. Here are some for each:
Character – When analyzing character, the underwriter will consider personal credit, including that of the principal’s spouse, business credit, bill pay history, management experience, past judgments and/or liens, standing in the community, among others. Essentially, if you are lacking in any character issues it doesn’t mean you won’t get a bond, but it does factor into the decision making process. How to maintain and improve?
Capacity – This is essentially the contractor’s capability to complete the work. The underwriter will examine company staff, estimating team, supervisory skills, project management, internal controls, management, among others. This is a critical element to the picture. Having superior capacity to help manage the complex nature of construction will help qualify a contractor. How to maintain and improve?
Capital – This is the money and financial resources a construction firm possesses – and at the end of the day, is the most important “C.” Profitability, working capital, cash, credit lines, debt to equity ratios, equity, personal financial strength, all factor into the capital assessment of a company. The old saying “cash is king” holds true in many ways with bonding. How to maintain and improve?
Bonding can be complicated but if a contractor keeps the three “C’s” in the back of his mind when making decisions on behalf of his company, it will lead to an increase in bonding. Contact Surety1 at 877-654-2327 or by email at [email protected] for a consultation of your bonding program. We can help build your three “C’s.”