The Bonding Process.

• Author: Barbour, Tracy

The process of securing a surety bond is shaped by a variety of factors. While there are an increasing number of alternative procurement methods, the most common is a standard design-bid-build project, according to Travis Remick, vice president of underwriting for Liberty Mutual Surety, one of the largest providers of surety in world. Using this procurement method as an example, the project owner will work with an architect or engineer to develop the scope of the project and then release a set of plans to the public for bids. Contractors who want to pursue the project will need to submit a bid, which the project owner will require to be secured with a bid bond.

The contractor will then submit a bid request to his or her surety agent, who will forward it to the surety partner for review and underwriting. The underwriting process can range from simple to fairly extensive, depending on the size of the request and how usual or unusual the project is for the contractor, Remick says.

For more routine job requests, the underwriter may simply want to confirm that the scope, size, and location are within the contractor's ongoing experience and capabilities. For a relatively small percentage of projects that involve larger and/or unusual jobs, the bonding process can be much more involved. The surety company will want to understand as much as possible about the contractor and project, including the contractor's interest in the project; an overall project breakdown; key risks; primary mitigating factors; key cash flow considerations; who will manage the job and their experience with the scope; how much additional work the contractor wants to pursue if successful; and any unusual contract provisions. The in-depth assessment is entirely appropriate, given the exposure the surety company assumes when issuing a bond. "No one is going to issue that type of guarantee without doing...