A clever headline, yes. It might even be the reason I’m writing this blog post at all, to be honest. Actually, no, that’s not fair – it’s only 50% of the reason I’m writing today. The rest of the reason is my relentless need to answer questions. Since we have opened the doors of our commercial department, we seem to have more and more contractors asking us about bonding. At first, we wondered if our reputation as amateur glue makers had gotten around, but after some thoughtful probing we realized that people were interested in learning what it takes to get a performance bond – and we learned why you should start the process before you actually need the bond. Hopefully this blog post will help you prepare so you can get the big jobs.
First, let’s get this out of the way – “What does a performance bond do?” An excellent question, and one that I am more than happy to answer. A performance bond guarantees the project time – so that if the project isn’t complete in the agreed upon time period, the bond is forfeit – and the person doing the renovations can use that money to hire another contractor to complete the job in a timely manner. Generally, performance bonds are required by companies doing large scale time sensitive projects, as well as by municipalities doing public works projects. A bond will be posted in the amount of the bid – so if you bid $160,000 to re-letter the town water tank, and you tell them you can do it in six weeks, you would post a $160,000 bond with a six week timeframe. If the job isn’t done, or isn’t done correctly (you paint it upside down) then the city has $160,000 to start all over again.
What does it take to get one of these bonds? It’s actually a lot like getting approved for a loan. Since the insurance company is guaranteeing your work, they want to get to know a bit about who they are partnering with – and they are partnering, because the bond for the $16,000 job up there, it only costs a few hundred bucks. How is that for some risk?
So what do the insurance companies need to know in order to get you bonded? First, they will need financial records, prepared by a CPA – records for both the business, and for the owner. I see you over there, asking “why” – because they are putting up money at pennies on the dollar that you are a reasonable person – who won’t abscond with the first payment, or who needs the money from this job to pay off a job he did six months ago. One can never tell who will be bad with money, but having someone with a solid financial history on paper is better than nothing – and I promise, you aren’t getting a bond until the company sees your statements, so go ahead and start putting them together now. Don’t know who to call? Call us, we will help you find someone.
Start typing up a resume while your CPA works on your financial statement. Obviously, it’s no all about whether you are going to split with the money – they also need to know that you are actually capable of getting on that water tower and getting the letters painted. So put together a resume for the company to look at. You can leave off the job you had at Wendy’s in high school – but if that’s your only experience and you are looking for a performance bond, you might just be out of luck.
Finally, the bonding company is going to want to know what your last few jobs looked like. Put together a description of your last five or six jobs, and what they cost. Once again, the insurance company is going to be backing you with their money – so they need to know that if you are bidding big jobs that you have done more than handyman work over the past year.
Once you have done all of those things, we will fill out an application and send your paperwork off for a Bonding Pre-Qualification Letter. As you can see if you read this post (and if you aren’t reading, why are you spending so much time on this page?) it takes some time to put a bond together. I bet you can also see that it wouldn’t pay to bid a job and then realize that you don’t qualify for a bond in the amount of your bid. In fact, some government projects may require a Pre-Qualification letter to be submitted with a bid. With proper preparation, you can bid jobs to your heart’s content, and know that if your bid is selected that you can be at work in a matter of days, rather than weeks. Call us today and let us help you make the next step in your company’s evolution – and let us make it a pleasant experience.