How a Financial Capability Letter Strengthens Your Government Contracting Bid
Posted April 10th, 2018
There are many factors behind landing a winning bid. For upper-level commercial construction projects — especially for those lucrative government contracts — you have to prove that your company can complete the work for a competitive price and that you have the means to carry it through start to finish. A Financial Capability Letter can solve this problem.
Funding affects everyone on the job.
If you don’t have the financial ability to make payroll, cover the bond premium, secure needed equipment or pay vendors, your entire project can be put at risk. If one subcontractor on the job cannot afford to cover the necessary costs, they may cut corners, like delaying material orders or putting less labor on the job. Even worse, if a subcontractor fails to pay its vendors or is otherwise unable to complete the job, the general contractor and owner risk a lien being placed on the property.
For many scopes of work, like Structural Steel, HVAC, Electrical, Concrete and Sitework contractors, the cost of material orders, equipment and dump fees early in the project can be incredibly expensive. So for those trades in particular, having sufficient financing in place is critical.
General contractors recognize that this financial strain by a subcontractor can delay or drag out the job, stressing the project overall. However, there are very few subcontractors who are able to have enough cash on hand to do the project without outside funding.
A Financial Capability Letter proves you’re financially prepared to do the work.
Include a Financial Capability Letter in your bid package, showing you have the capital available to do the project right.
The letter, supplied by your funding partner, will state the following:
- The amount of funding available
- That the funding will be set aside specifically for that project
- The name of the project
- The name of the general contractor
Often in the form of a loan pre-approval letter, the Financial Capability Letter will state that your company’s financial standing has been verified. The letter also acts as an additional point of reference, making the general contractor or project manager feel more confident in your ability to complete the work on that particular project. In a competitive bidding process, this can make all the difference.
Pro tip! In the pre-approval process, secure a breakdown of how much the loan will cost, then build the cost of that capital into the bid.
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