For this week’s Guest Post Friday here at Construction Law Musings, we welcome Alex Levin. Alex is a writer for Lance Surety, a nationwide surety bond company who write and provide a variety of bond types from construction bonds to auto dealer bonds.
In the eyes of many contractors and licensed business people, obtaining a surety bond is a necessary evil in their quest to take on work. Whether you are applying for your first surety bond or are shopping around for a new surety bond company, understanding what to look for before signing with a surety company is essential.
1) Check their license
Any company that issues surety bonds must be licensed by the insurance department of the state in which they operate. Periodically, these licensing departments will perform exams of the surety company to ensure they are practicing in accordance with legal and ethical guidelines.
2) Know your project
If you’re beginning work on a federal government construction project, your surety company must not only be licensed by the insurance department, but also certified by the U.S. Department of the Treasury. The Treasury Dept. maintains an online list of certified companies that can be used as a reference when beginning the search process. The database lists all federally certified surety companies along with the states in which they are licensed to write bonds and the total underwriting limit that has been set for them by the government.
3) Understand their ratings
For those that aren’t beginning a federal project, independent ratings organizations offer third-party analysis of surety companies. These consumer protection groups aim to give an unbiased evaluation of a surety’s standing. One of the mostly highly regarded ratings organizations is Dun & Bradstreet, who evaluates surety companies as well as many other businesses. While many ratings groups require membership or a fee to obtain a report on your chosen surety company, spending $100-200 upfront to ensure your surety is legitimate can save a world of headaches down the road.
4) Shop around
Rather than seeking a straight forward surety-only company, investigate using a surety bond producer. They are independent agents with contacts in several surety companies. Producers can evaluate a client’s individual needs and pair them up with the best qualified surety company, even assisting the client in preparing for any pre-qualification processes. The National Association of Surety Bond Producers oversees all of these agents and ensures they are held to appropriate levels of professionalism to protect the client’s best interests.
5) Verify their authenticity
For companies who regularly hire contractors to complete contract work, there are also resources available to check the background and history of a surety bond that is presented to them. Bonds can be verified either directly through the surety company, or by contacting the Surety & Fidelity Association of America. If you are working with a new contractor or an unfamiliar surety company, verifying the bond can confirm that you have adequate coverage should anything go awry on your project.