Risk & Business Magazine Marcotte The Magazine - Winter 2018 | Page 7

CONTRACTOR BONDING
federal laws and regulations. Obtaining
this type of bond is a simple process that
requires submission of the contractor’s
name and address, name of obligee, and
type of license, such as “electrician” or
“carpenter.” They are generally written
for between $1,000 and $25,000, with no
financial requirements needed from the
contractor, and they must be renewed
annually.
A bid bond helps contractors gain an early
advantage in competing on large jobs.
Similar to a mortgage preapproval letter for
a home buyer, the bid bond guarantees that
the surety company will provide a payment
and performance bond (discussed below)
if the contractor is awarded the project.
Since the contractor includes the cost of
the performance bond in its bid, having a
competitive rate is important to keep the
bid in line with competitors.
TO FACILITATE THE BID
BONDING PROCESS,
MARCOTTE WORKS WITH THE
CONTRACTOR TO REVIEW
ITS BANK HOLDINGS AND
OTHER MONETARY ASSETS
TO ENSURE THAT THEY ARE
IN A STRONG FINANCIAL
POSITION, BOTH FROM A
TAX STANDPOINT AND FOR
FUTURE BIDDING.
As part of the application process, the
contractor will also provide background
information such as prior experience, years
in business, and supplier payment records.
We work to present contractors to surety
companies in the best possible light to
obtain the most favorable bonding terms.
Our goal is to start working with
contractors early in the game so that the
minute an RFP is issued, we can begin
to review the project specifications for
obtaining the bid bond. This early approval
demonstrates to project owners that the
contractor is financially strong and a good
candidate to receive the full performance
bond.
If the contractor is awarded the project,
the owner will write up the contract and
require the next bond phase:
A payment and performance bond, which
is executed by Marcotte and backed by the
surety company for the full amount of the
contract. The payment and performance
bond acts as a binding agreement between
the project owner and the contractor,
which is assumed by the surety company
if the contractor is unable to fully execute
the contract for any reason. If, for example,
the contractor goes “belly up” in the middle
of the job, the surety company would take
over, working with the owner to hire other
contractors to assume parts of the job
that haven’t been finished by the original
contractor. The surety company makes
certain that all suppliers and workers are
paid and that the job is completed smoothly
in line with contract specifications. Once
the job is completed, the surety company
would attempt to recover as much of
their cost as possible from the original
contractor and absorb any losses.
We can also work with contractors
to establish a bond line with a surety
company, which gives them year-round
approval—at an aggregate rate—on
individual projects up to a certain dollar
amount. If the contractor completes a
lengthier application process, has good
experience, and a strong net worth, they
could be approved, say, for single jobs up
to $3 million and a total from all projects
of $10 million. The great thing about
this type of arrangement is that it’s no
longer necessary to get outside approval
for each new bond. Instead, Marcotte can
write these bonds internally—and more
quickly—as long as the projects are within
the bond limits.
WHEN CONTRACTORS WORK
WITH MARCOTTE, THEY
ARE NOT “JUST” BONDING
CLIENTS. AS PART OF OUR
ADVISORY ROLE, WE REVIEW
OUR CLIENTS’ INSURANCE
POLICIES TO ENSURE THAT
THEY HAVE THE COVERAGES
NEEDED TO ADEQUATELY
PROTECT THEMSELVES AND
THEIR BUSINESSES. IDEALLY,
WE LOOK AT BID SPECS AT
THE BEGINNING OF THE
PROCESS TO MAKE SURE ALL
INSURANCE AND BONDING
REQUIREMENTS ARE MET FOR
THE PROJECT. THIS WAY OUR
CONTRACTORS ARE AWARE
OF ANY EXTRA COSTS THAT
SHOULD BE ADDED INTO THE
BID TO AVOID SURPRISES
LATER.
With this additional level of review,
Marcotte provides that extra safety net to
help minimize exposure in every key area
of risk, freeing contractors from worry and
allowing them more time to attend to their
core business.
Gordon Wehner is an outside the box thinker
who pushes hard to achieve the best outcomes
for his clients. As a Commercial Lines Advisor
and Licensed Consultant at Marcotte, Gordon
assists clients ranging from contractors
and manufacturers to healthcare providers
and hospitality operators. He develops risk
management and insurance programs specific
to each client’s individual needs and then
implements and delivers measurable solutions-
based services. As part of an integrated model,
Gordon also leads Marcotte teams providing
employee benefit and retirement plan solutions.
A Nebraska native, Gordon was a member of
the Delta Tau Delta fraternity at the University
of Nebraska in Lincoln. He is a member of the
Big O Networking Group, All About Omaha,
Greater Omaha Young Professionals and IFMA
of the Midlands.
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