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CPA-prepared financial statements, a bank’s letter of recommendation (detailing average cash balances and lines of credit), statement of qualifications, resumes of key staff, and references from suppliers/vendors. Then he submits the information to three to five sureties that would be the best fit. He also goes with the client to “interview” the surety and, ultimately, helps the client evaluate the surety’s program, rates, financial rating, and experience. “We want to make sure we have an underwriter that understands the risks they are undertaking,” he says. It can be challenging to get a bonding program set up for a new contractor with a scant track record. The credit report is the most critical requirement that owner(s) must provide in order to set up a surety program for the first time. “Most surety companies require the principal owners to have a credit score of 680 or higher for consideration for a surety program,” Grieco says. Preplanning is the key. A contractor who is beginning to take on larger jobs and may soon be in position to start bidding jobs should plan ahead and work closely with a commercial insurance broker to get “pre-qualified” with one or more surety companies. It could also be helpful to secure a Small Business Administration bond guarantee. The Small Business Administration helps

small contractors by guaranteeing bid, performance, and payment bonds issued by participating surety companies for contracts up to $6.5 million. “A contractor qualified with the Small Business Administration may have preference with some surety companies,” Grieco says.

antee backing them,” Armfield says. In addition to collecting basic project-specific information, surety companies expect to receive regular financial updates and periodically meet with contractors to understand their businesses and capacity to perform the work they are seeking to bond, Armfield says. “The process of Underwriting Process securing a specific bond can be as and Timeframe Vary easy as a phone call if the groundThe difficulty of obtaining a surework is laid on an ongoing basis by ty bond also depends on the type a proactive surety broker,” he says. of bond involved. For instance, Regarding the timeframe, it can many surety companies view litake anywhere from a few days to censes and permit bonds as moda few weeks to secure a contract est credit risks, and there are mulor commercial bond for someone tiple facilities in place to secure Armfield who doesn’t have an existing surethese bonds with relative ease, acty relationship in place or who is in cording to Guy Armfield, a vice president and need of a new one, Hubble says. Much of the account executive with Parker, Smith & Feek. timeframe depends on the quality of the inArmfield works in the company’s Bellevue of- formation received and the speed at which the fice and maintains a large book of construc- business can provide the information to their tion clients who require bonding in Alaska. broker. “For clients with an ongoing facility in However, performance and payment bonds place, typical turnaround time for receiving a are a more complicated product to secure and bond they request is one to two days,” Hubble lend themselves to long-term exclusive rela- says. “However, we have the ability to provide tionships between contractors and a surety. same-day service if a last minute need arises.” “Surety as a line of business is written with In terms of pricing, surety bond premithe objective of zero losses; therefore, under- ums vary according to the contractor’s fiwriters need/want to know as much about a nancial health and wherewithal. Premiums company as possible before providing a guar- run from 1 percent for established prin-

YOUR BUSINESS TAKES YOU PLACES. Let us help you get there. “Jack Grieco and his department ensure that we get excellent service with a personal touch. I would encourage other business owners to invite Jack over to talk with them about their business insurance needs. “ - Edward Yarmak, P.E. | President, Arctic Foundations, Inc.

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March 2016 | Alaska Business Monthly


Alaska Business Monthly March 2016  
Alaska Business Monthly March 2016  

“Forever Alaskan” Carol Gore, president and CEO of Cook Inlet Housing Authority, is a quintessential leader in creating affordable housing f...