Securing a surety bond can be a major hurdle for commercial construction companies looking to land bigger projects and grow their businesses. This is especially true if bidding on a government contract.
What is a surety bond?
Bonding is similar to an insurance policy, in that a surety bond company will cover the cost to fix any problems that occur, such as failing to complete the project, once a claim is filed against the policyholder. Unlike an insurance company, however, the surety bond company can then charge the policyholder for any dollars they pay out if a claim is a made.
To protect against losses, surety bond companies require stringent and thorough underwriting processes. In many cases, a bond company will charge a Bond Premium upfront before issuing the bond you need to start work.
Securing a bond can be a trying experience, especially when you have a valuable project at stake. The best strategy is to be organized, persistent and thorough.
First, know what kind of bond you need.
The first step in securing a bond is understanding what type of bond your company is looking for, as well as the value of the bond. Here are some of the most common, though they can be combined depending on your contract and situation.
Performance Bonds
Performance Bonds are the most common type of bond. They are required by many large projects, both public and private. If for some reason your business is unable to complete the work it was hired to do, the bonding company will have to cover the cost of getting the work done by someone else.
Payment Bonds
Rather than performance bonds, which primarily protect the project owner, payment bonds largely protect subcontractors, vendors and material suppliers for jobs on public property. Lien laws that ensure subs, vendors and suppliers are paid cannot be applied to projects taking place on public property.
Bid Bonds
Typically limited to public projects, bid bonds are a strategy for a project owner to pre-qualify bidders. By awarding a bond, the surety company is endorsing the bidder’s ability to do the work. A bid bond also means that if the lowest bid is accepted and then the bidder backs out, the bonding company will ensure that a bond penalty is paid (between 5% and 20% of the bid price).
Know what bond companies are looking for.
Surety bond companies only issue bonds to businesses that prove they are able to complete a project according to the contract. That means having the financial means to cover the cost of things like materials, labor and equipment.
They often require documentation such as:
- Company financial statements
- Work history
- The owner’s personal financial statements
- Credit checks
- Resumes of each owner
- Professional recommendations
To navigate the complicated system, most business owners hire a professional bond agent to help prepare and educate them on preparing the company for the application and underwriting process, identifying surety bond companies and then working with the owner through the underwriting process to secure the bid itself.
Surety bond underwriters consider the following categories when considering whether or not a contractor should be granted a bond, according to ConstructionBusinessOwner.com.
Character
Are the individuals who make up the construction firm of high moral character?
Capacity
Does the construction firm have the people with the knowledge, experience and understanding to do the work?
Capital
Does the construction firm have the equipment and financial wherewithal to complete the projects they desire bonds on?
Know how your credit affects your surety bond.
Similar to applying for a business loan, company owners and their spouses are typically required to sign an “agreement of indemnity” or a personal guarantee.
The cost of the surety bond is dependent on the company and business owners’ credit worthiness. Good credit can result in a bond premium of about 1% of the bond amount, or two to three times that if they have poor credit. That cost will often be due in full before the bond can be issued.
Danielle Rodabaugh, the chief editor of SuretyBonds.com wrote that you should thoroughly check your bond before signing and especially before submitting it to the project owner to verify that your company name, business address, bond value are all accurate and free of typos. Otherwise you risk your bond being rejected and losing the job.
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How a Financial Capability Letter Strengthens Your Government Contracting Bid
Tampa International Airport (TIA) is nearly finished with the first phase of its roughly $2.3 billion expansion. The first phase has included the construction of one of the largest car rental facilities in the country (2.6 million square feet), and a 1.4 mile people mover track, plus renovations to each of the four existing airsides and a major remodel of the main terminal.
The world of insurance can be confusing, especially for commercial construction business owners who need coverage for their commercial contracting companies.
The challenge is buying the right insurance so that your company is adequately protected and still within its operating budget. Insurance expert, Beckie Ervin of Ervin Insurance Concepts, recently spoke with Mobilization Funding to point out common, avoidable mistakes that can save you money and better protect your business.
If you own a construction company, you might feel pretty safe from hackers. Your company may not have a website, physical office location or a big staff. But unless you operate on a paper-only basis, you could be susceptible to hackers who want to exploit information and steal dollars from you, your company, employees, and clients.
Why would anyone want to hack your company when there are so many others out there? Because they can.
Hackers around the world are constantly looking for ways to steal money and information from American businesses of all sizes. They’ve captured thousands of credit card numbers through major retailers like Target. They’ve gained access and exploited information from all types of organizations, ranging from Fortune 500 corporations to public utilities and small private companies. They find ways to get everyday people to download corrupted files or programs or even emails that give them access to the information on your computer.
While it may seem unlikely, construction companies like yours have plenty of things that hackers want access to, like bank account information, credit cards, incoming receivables, employee records and personal information. But hacking is preventable. Many individuals fall prey to phishing scams where hackers are able to take control of a computer and force you to pay them so that you can access it again.
Here are a few easy steps you can take to minimize the chances of being hacked.
Update your passwords regularly
Do you use the same username and/or password for everything? If so, those accounts may be compromised already. Hackers, knowing that most people use the same log-in information, then use those same credentials to gain access to accounts on hundreds of different websites.
Large companies like Adobe (whose products include Photoshop or Acrobat) have been subject to hackers who stole username and password information from more than 150 million accounts.
While it is less convenient, your information will be exponentially more secure from hackers if you always use different passwords for your online accounts. For the most sensitive accounts like your email, online banking accounts and computer log-ins, you should change the password every three months and require your employees to do the same.
Bonus Tip: Use a service like 1Password so you don’t have to remember all those passwords.
Add extra security
For many online banking and email accounts, you can choose to add another layer of protection to your account called two-step verification. Two-step verification means that the website or bank will alert you if anyone attempts to log into your account from an unrecognized computer. It will also force whoever is logging into that account to input a code that is sent directly to your mobile phone.
Don’t log into unsecure networks
One of the most common ways for your computer and network to be compromised is to access free public WiFi networks like those at airports, coffee shops, or even the library. Because the networks have less protection, hackers can use them to gain access to your computer or accounts. If you need to use those networks, be careful about accessing sensitive information or logging into other secure accounts.
Secure YOUR network
Your own WiFi network is just as vulnerable as your local coffee shop’s if it is left unsecured. And if you’re thinking hackers won’t look for your network, think again. Hackers actually drive around in cars outfitted with antennas just to find unsecured networks. It’s called war-driving.
Cool name. Bad practice.
Protect your WiFi by updating its encryption standard and setting a password that is obscure. Don’t set the password, for example, to your business name plus the year. Hackers will crack that in no time.
Work with a cybersecurity partner
Construction is a group effort industry, so don’t stop that philosophy at the job site. Working with a cybersecurity partner, preferably a local business that can meet with you and answer your questions, can help you secure your data and protect your business.
Train your employees
Your employees already know to secure the shop for the night, but are they locking up their data? Implement a cybersecurity training program for your employees and ensure that those policies and best practices are followed.
Bonus Tip: Not sure what that policy would look like? This is a great place to start with a cybersecurity partner.
For additional resources about how to secure your business online, visit the National Cyber Security Alliance’s Stay Safe Online website.
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How does your business calculate the right bid for a job? Do you sort out the job cost and then increase it by a third? Do you use the “10 and 10” method, adding a 10 percent overhead and 10 percent profit? Are you able to differentiate between margin and markup? When is the last time you double checked those figures?
Financial expert George Hedley estimates that at least three-quarters of installation contractors don’t know how to estimate the markup they’ll need to cover job costs plus overhead and still turn their projected profit margins. Larger companies may find that their markup needs to be higher to cover increased overhead costs or to ensure that current or future investors are seeing healthy profit margins.
Understanding the difference between margin and markup is critical for contractors and business owners. We created this helpful Margin vs. Markup guide so you know your numbers are right.
Common terms defined:
Job costs include everything you’ll need to complete the work. This includes labor, materials, leased equipment costs, projected capital costs (if borrowing money for the job), bonding premiums, permits, gas, and other materials and supplies.
Overhead is all the bills and expenses not included in the above job costs that you will need to pay in order to operate your business. While this sometimes varies, it includes things like rent for your office, office-based support staff, some types of insurance, tools, equipment, bookkeeping, accounting, legal costs, owner’s salaries, outstanding debt payments and whatever else it might take to keep the lights on if you don’t have active jobs.
Net profit is the remaining amount after job costs and overhead are subtracted from the price. With net profit you can make capital investments in the company (new office, new equipment or machinery) and take distributions from the business in addition to your salary. A healthy business should be able count a net profit of at least 8%, experts say.
What is the difference between margin and markup?
Markup is the sales price, minus the job costs. Margin is the sales price minus the job costs and minus overhead allocation.
Here’s an example:
Let’s say you’re bidding on a job that will cost your company $200,000 to complete with materials, labor, and equipment, and you plan to bid $250,000. Your total sales forecast for the year is $1 million and your annual expected overhead costs at that level is $80,000. That’s an 8 percent cost of overhead. In other words, you need to tack on more than 8 percent to the cost of the job just to break even.
Many companies don’t take such a close look. Your business may be spending too much on overhead, or in times of growth, may not set aside enough to cover the cost of rent or to pay your own salary.
Your markup would be calculated as follows:
Using the overhead, you can also calculate the margin:
At the end of the day, having too thin of a margin can leave your company vulnerable if something goes wrong on the job, like a weather delay or another trade’s issue. A good bid is never about just tacking on some standard percentage to your job costs. It’s about being precise about your business’s financial needs.
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A natural disaster can put your whole life at risk. For business owners, there is even more to worry about and prepare for. A natural disaster like Hurricane Harvey in Houston, or the recent wildfires of California can lay ruin to your company.
You may think it would never happen to you, but one in three small business owners have been impacted by a natural disaster at some point or another. And worse yet, researchers at the Institute for Business and Home Safety found that one in four small businesses never reopen after they are impacted by a natural disaster.
Here are a few basic ways to protect your business in case disaster strikes:
1. Insurance. Insurance. Insurance.
Especially in the commercial construction sector, it can feel like you need insurance for everything. But consider that on average, a small business loses $3,000 per day once they close due to a major storm. How long could you stay afloat in a situation like that? Disaster Insurance, Business Owner’s Policies (BOP), or Business Interruption Insurance can be the key to saving your business if the worst happens.
When purchasing insurance for new equipment or for your business property, be sure to ask and understand what is covered and what isn’t in case of a disaster. Take some time to reach out to your current insurance provider to ask: “If my area gets hit with a natural disaster like a hurricane, flood, tornado, earthquake or wildfire, am I covered?” Then make sure the language in your contract is consistent with the answer you receive. This will allow you to be aware of any gaps in your insurance coverage so that you can fill them with additional insurance or set up your own funding methods to protect those assets.
2. Invest in a generator.
One relatively easy way to get your business back up and running after a disaster is to have a generator. After all, just because the grid is down doesn’t mean your office should be. Most businesses can’t operate for long without computer access. In case of a longer-term outage, your team will need access to things like overhead lights, power outlets, printers and a working coffee machine. According to one study, just 29% of small business owners have made the investment.
This is one item you should never buy just before an approaching disaster, since you likely won’t be able to find one anyway, and if you do you’ll probably pay double or triple for it. Plan ahead and do you research while the skies are clear. Find the right generator for you needs and purchase it as soon as you can. Another option is to make sure your employees have the tools and access they need to work remotely.
3. Secure key documents.
What documents does your business need to operate? If all of your work history, contracts, insurance agreements, Rolodex, employee and company information is saved in a file on your office computer, or locked away in a filing cabinet in your office, you need a backup.
This can be in the form of a storage company that can store your physical documents, like Iron Mountain—just make sure the facility is at least 50 miles away—or data centers for your electronic files with a company like Flexential.
4. Develop a thorough plan, and communicate it.
If a storm is coming or your job site is at risk of a natural disaster, ensure you are on the same page as the property owner or general contractor. Know when you would tell your employees to go home and make preparations or what to do in case your area is evacuated. In those cases, how should your team handle any equipment, materials or supplies at the job site? Who is responsible for taking and storing photographs of the site before a storm or natural disaster hits?
In areas where there is risk of tornadoes, flash floods or fast-moving wildfires, you should have a set plan in place for your employees to protect themselves on the job site.
In addition to the owner or GC, if your work schedule is interrupted by a natural disaster, you will likely need to contact vendors, suppliers, subs, your bank or lending partners. Be straightforward if this may impact your ability to make a payment on time or your ability to pick up a delivery. Honesty, initiative and responsiveness go a long way in these instances.
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Commercial construction bidding can be a stressful and frustrating process. It takes time, energy, and doesn’t always pan out in your favor. But, sitting out the race also means turning your back on tremendous growth opportunities. Here are some common mistakes contractors should avoid when bidding on new projects.
You aren’t qualified
That doesn’t mean you aren’t CAPABLE of the work, but it does mean you will need to put in extra effort to show a General Contractor that you understand the full scope of this project, and how your previous expertise will inform your execution strategy.
You don’t have the relationship
Construction is all about relationships. If you are trying to land your first big job, it pays to invest extra time and energy into building a relationship with the General Contractor. Let them know you are willing to work on smaller, additional projects on the site, or to collaborate on any problems that occur. Be a person they can turn to in a pinch, and eventually you will be the person they turn to for opportunities, too.
Casting too wide a net
Look for the best opportunities for your business and focus on your strengths. It’s better to focus on jobs that you are confident and comfortable in rather than trying to overexert your company’s capabilities. Over time, this will allow you to find the sweet spot with your bids.
Pro Tip: ConstructConnect has a searchable database that can help you find actively bidding commercial construction projects in your area.
Waiting for the bid to be announced
Business owners should always be on the hunt for new job opportunities. Talk to your General Contractor or reach out to contacts in your network. Ask if they know of any future jobs that could be good leads for your company, and if they’d be willing to put in a word for you once the bid is submitted. This will help narrow and improve your bid and project pipeline.
Wasting time on “iffy” projects
Drawing up a bid proposal can be grueling process, so be sure to regularly evaluate the quality of the potential job. If it’s not a good fit, it is often best to walk away and look for something else.
Skipping pre-bid meeting and site visits
Creating a good bid proposal requires precise estimations and detailed planning, so take advantage of any opportunity to research and learn about the job. This can also help you build rapport with the GC or project owner, and is an opportunity to ask questions about allowed material substitutions, bonding or wage rate requirements, and double-check that you’re interpreting the plans correctly.
When it comes to construction bidding, don’t go it alone
Always have additional eyes reviewing your bid. Not only should you ask your business partners or an outside agency to look out for typos, but also to check your math and verify that everything adds up properly. A reviewer can help make sure you didn’t miss any important components that could mean the difference between winning and losing the bid, but also can protect you from submitting a bid that is too low for the job, which can result in lost money and unnecessary debt.
If you found this blog helpful and informative, you may also enjoy our Built For Growth Newsletter. Click here to subscribe and get more tools and resources sent directly to your inbox every two weeks.
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The government construction contract realm is worth about $270-billion dollars, with a near-guarantee of payment for your work. From public schools to county courthouses, to airports and interstates, government construction contracts can be incredibly lucrative for commercial contractors.
But breaking into the public sector can be tough. Here are some tips to help strengthen your bid.
Start with the paperwork.
There is a lot of red-tape involved in bidding on a public sector project. This first step can trip up a lot of contractors. Get in front of the required paperwork by creating a list and tackling one item at a time. The government has set out steps for the documents and certifications needed to apply for public projects. They include:
Identify your NAICS Code, which will put your company into a particular industry classification.
Determine the size of your company using the SBA website’s size standard tool. A quarter of all government contracts must be awarded to small businesses, so if you qualify as one, that can give you an edge.
Register with Dun & Bradstreet to obtain a DUNS number, which allows you to submit bids for public contracts in your area.
Sign up with the Central Contractor Registration (SAM) database, in order to register and track those government jobs.
Join FedBizOpps.com, which delivers new relevant RFPs and contracts available for bid.
Look for subcontracting opportunities on government projects using the SBA’s SubNet database.
Connect with a Procurement Technical Assistance Center (APTAC) where you can sign up for classes, work with a counselor and attend networking events.
If your business is women – or minority-owned, be sure to register with the National Association of Women Business Owners or the National Minority Supplier Development Council.
Show your government experience online.
Make sure you are well-represented online and that your website is current, with language specifically geared to government agencies. This is key since, beyond the information you submit, decision-makers will frequently vet a company by looking at their online presence.
If your company has worked on other public projects, be sure those are visible on your site and link to a case study with details that back up your bid if possible. If you don’t have any public projects to showcase, look for projects similar to the one you are bidding on.
Place your government and public projects in your online portfolio. Include great photos and descriptions of the work performed. Make sure your gallery is easy to find and navigate. Consider grouping or tagging your government projects by categories like schools, municipalities, and emergency response stations.
Keep an eye on your competition.
Keep your finger on the competition’s pulse by tracking contractors, contracts and future projects online. A little bit of research can give you a better idea of what your competitors are doing and help you gain an edge in positioning your company. The U.S. General Services Administration has recently merged several sites into one easy-to-use interface: https://beta.sam.gov/. This site houses information on governmental design and construction, policies and compliance, environmental laws and regulations, and more.
Focus on your reputation and past performance.
Proving that you are an established business and financially stable is essential to securing a bid. Make sure you are cashflow positive and that your financials are in order. An outside consultant or a CPA can be invaluable if you are unsure of your standing. Ultimately, the company that offers the most competitive bid with a strong track record of finishing high-quality jobs on time will secure the bid.
Click here to learn how a Financial Capability Letter can strengthen your government contracting bid.
Triple-check your bid amounts.
It can be tempting to lower your bid amount in order to beat out your competition and win the job. Remember that public entities will scrutinize your bid, and most will weed-out those that are unrealistically low.
Even if you were to get the job at unrealistically low price by dropping your profit margin you are adding unnecessary risk to the job, especially when a weather delay or unforeseen setback occurs, preventing you from being able to do the job as originally planned. It’s better to wait until the right bid goes through at a price that is appropriate to the job.
Bidding is all about the numbers. Make sure yours are accurate.
Get a free Margin versus Markup guide here.
Be sure to have adequate funding in place.
One of the most challenging parts of securing a bid is proving that you have the money to do it right. Lacking the cash and mobilization capital to cover expenses like permitting, surety bond premiums, material, and labor can be a big hit to your company’s bottom line before the project has even started.
Over the last several years, many commercial contractors have scraped by with whatever cash they have until they submit their first pay app. Then, they seek out other ways to finance the project, some of which often result in an impossible cycle of debt.
Click here to read The Guide to Merchant Cash Advance Loans.
You can avoid that debt whirlpool by securing funding upfront to cover early expenses. Securing funding before the project starts strategy allows contractors to build the cost of the capital into their bid rather than have it come out of their profit margin later on. Companies that secure a loan in advance can bolster their bid by providing the property owner with a pre-approval letter.
Be realistic and meet expectations.
Being awarded and then failing to perform on the first project because you took on a one that was too large or too challenging will make it unlikely for you to secure another public bid in the future. The construction industry relies on word-of-mouth and reputation, even in the public sector. Don’t burn your first opportunity by shooting for the moon and falling flat.
Plan for your first public project to be well within your business’s comfort level and capability. Be accurate and upfront with your bid, get the work done, and meet expectations at every step. The reward will be the larger project you win the next time, and the next.
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Are you still walking around a job site with a clipboard and several coffee-stained checklists? Or dealing with fax machines and frantically rushing to the office to print out documents? Good news! The answer to increasing your productivity is right in your pocket.
If you have a smartphone or are willing to invest in one, you can transform your business operations from an organizational nightmare to a well-oiled machine. Developers have created a seemingly endless number of apps and programs designed to make you more productive.
Here are four types of apps and programs we recommend that can help shore up your workflows:
Apps for Equipment Rentals and Tools
Many large companies in the last several years have released their own apps to make it easier for you to use their products or services. United Rentals has a free UR Jobsite app that allows its customers to access their account information and remove or extend their rental terms, or even shop for used equipment they are selling.
Tool manufacturer Dewalt has a handful of apps, including one that will track the tool battery life and another that can handle job site calculations, from stairs landing height to volume conversions.
Even retailers have apps to simplify new tools and equipment purchases. Most national retailers, like Lee’s Tools, Home Depot and Lowes all allow in-app purchasing.
Apps for Document Signing
There are tons of apps for Apple or Android devices that allow you to sign work forms and other documents on the go. Some of the most popular include Doc U Sign, Adobe Fill & Sign and Sign Easy.
Financial and Accounting Apps
Even many smaller credit unions now have apps that allow you to keep tabs on your current accounts. This can help you track whether or not a wire transfer went through, if one of your vendor processed a big check, or if there is any unusual activity on your account.
Does your payroll or accounting company have an app? Many do, and they can make your life much easier. Paychex, for example, has a handful of different mobile platform options, including one allowing employees to punch in and out for the day on an iPad or tablet on the job site.
Intuit also has a payroll on-the-go option that even has a free direct-deposit feature; business owners can review and edit all the payroll information from their phone or tablet and then authorize the direct deposits.
Any contractor knows that keeping on top of invoices is key in keeping the business running smoothly. There are several app options for this, like Invoice2Go or Invoice by Wave, that can help to draft, track and archive invoices to make it easier to manage cash flow.
There are even some smaller apps, like MileWiz. This automatic driving log removes the worry and work of actively recording mileage on your vehicles for tax purposes or driver reimbursements.
It has been about a decade since the first iPhone was released and now over 200 million Americans have smartphones. There are tens of thousands of apps that allow people to do all sorts of things, from accounting to taking current pictures and videos on the job site. Chances are, your competitors have them and are using them to improve efficiency in their own company. Are you?
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Construction can be a dangerous career. Thousands of people are injured every year, a result of many factors like careless drivers, poor training, or inadequate safety policies. But the industry is working hard to correct many of these problems with new technology and best practices.
Here is a list of new technology and advancements that may help to minimize the risk of accidents on your job site.
Smart Construction Technology
Sensors are already saturating themselves into our everyday lives. Car manufacturers install them in vehicles to prevent accidental collisions. Many smartphones automatically track your steps per day. Sensor technology is already well-integrated into many types of construction equipment, but there is still a long way to go. Several companies are working on implementing new personal technology to bring safety equipment into the 21st century.
For example, DAQRI has developed a hard hat integrated with Google Glass technology so that the wearer can see the temperature of a pipe or piece of equipment without having to touch it. That can help prevent burns as well as being able to spot problems like hot spots at a construction site. The helmet also tracks where a worker is located on the job site to alert them of hazards in certain areas, or give instructions for the proper handling of a different pieces of equipment to prevent misuse and subsequent injuries.
Smart Safety Vests monitor a worker’s heart rate and body temperature and warns them of any abnormalities. This is especially helpful during the summer months for construction workers to prevent heat stroke or other health issues caused by the heat.
Triax Technologies, Inc. has made wearable sensors attached to a worker’s belt that immediately alert others when the wearer falls or is otherwise injured. The sensors also help to log information about the incident for insurance purposes.
Low Tech Changes
On the other side of the spectrum there are many recent, less technical improvements that have improved the safety of construction zones.
- – New fabrics have led to dry, cooling bandanas and neck wraps that can help prevent workers from overheating.
- – Safety gloves are now stitched with steel to prevents cuts, punctures and abrasions while allowing for enough movement to get the job done.
- – Work boots today are specifically engineered to protect the wearer from much more than toe and ankle injuries. Some are built to combat slipping on water or oil, prevent puncture wounds from stepping on a nail, and protect against freezing temperatures or even electrical charges and acid spills.
Construction continues to be one of the more hazardous industries to work in, but these practical solutions and more like them are appearing every day to make hard-working employees safer.
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