Knowledge Corner

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In the construction industry, there are times when Contractor default occurs. Unfortunately, defaults are not always foreseeable or manageable. Here are several factors a Surety will review in order to make the decision on whether to retain a defaulted Contractor.

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With the middle of the year and the end of the 2nd Quarter quickly approaching, as a construction firm Owner, make sure you are reviewing your financial statements. The best way for your construction company to grow is to have a clear picture of your finances.

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When it comes to growing your construction company, we often associate success with money. The more money we make, the more successful our company. One of the most important things you can do as a business owner is master your financial health. When you have a clear picture of your finances, you’re able to identify your company’s strengths or weaknesses.

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As in any healthy, productive personal relationship, both partners must be active participants working towards a common goal(s). If one partner is passive and unengaged, it will be detrimental to the relationship as a whole. The same goes for your business relationships. The business relationships that bring the most value are those where both parties are proactively contributing – in good times and in the bad times.

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Every construction project presents a host of potential risks that need to be addressed. Although it’s no guarantee that you can eliminate all of them; you can help manage them and de-risk your business. The best way to eliminate as much risk as possible is to have a Risk Management plan. Risk Management is the practice of identifying & analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose.

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The National Association of Women in Construction (NAWIC) and Safe Site Check-In shared the results of a workforce survey. This survey consisted of over 700 women in construction and was conducted in early February 2021, over a variety of construction jobs and titles.

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There can be a myriad of problems when a Contractor cannot fulfill its contractual obligation in connection with a construction project. This puts the Owner in a position to suffer a financial loss. In addition, the Contractor’s subcontractors and material suppliers may not receive payment from the Contractor for labor performed or materials supplied.

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The fiscal year-end for many companies is just around the corner. Subsequently, now is a good time to begin tax planning while keeping in mind how your year-end financials will look when presented to your banks and Surety companies. Banks utilize year-end financial statements to underwrite your credit facilities as well as Surety carriers to establish your bond program throughout the year.   

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In the construction industry, Surety bonds are often an important part of a project. They help keep a project on track and ensure that there is a backup plan in place for an Owner, in case a Contractor cannot complete their work. In this situation, a Surety bond is a guarantee by a Surety company to fulfill the obligation of a defaulting Contractor. Bonds protect the Project Owner against a loss as a result of the Contractor's failure to meet this contractual obligation. Here are a few ways that surety bonds can help project owners minimize their risk.

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Subrogation is a circumstance where an entity (Surety) is substituted into the place of another entity (the Principal) with regard to a claim or legal right of the Surety’s Principal. As a result, the Surety will “step into the shoes” of its Principal and assume the Principal’s claims, legal rights, and remedies.

The Surety promises the Project Owner that it will fulfill the contractual obligations of its Principal in the event the Principal defaults on a bonded contract.