What is funds administration?
Funds administration ensures appropriate use of contract payments to complete a project - whether it's flow down to subcontractors and suppliers or direct payments to contractors for profit and overhead. Under a funds administration program, an independent third-party administrator receives and disburses the contract funds on the bonded contractor's behalf. By decreasing risk for both the surety and contractor, funds administration allows a surety to issue more bonding credit in appropriate situations.
Funds Administration Documents:
Disbursement Agreement. Agreement between the bonded contractor and third-party funds administrator that details the flow of funds.
Directive to Owner/General Contractor. The bonded contractor provides this document to the project owner or general contractor to request project payments be made into the funds administration account.
Job Cost Details Sheets. Details the cost of labor, subs and suppliers. Often requested by the third-party administrator, this document ensures the project remains on track as draw requests are submitted.
Flow of Funds:
Bonded contractor submits pay application to the owner or general contractor.
Payment Into Funds Administration
Owner/General contractor issues payment to the contractor into the funds administration account.
Contractor submits draw requests to the third-party administrator.
Third-party administrator issues payment from the funds administration account in the contractor's name.
Funds Administration Utilization
- Material prices escalating causing significant increase in project size(s).
- Overall need for an increase in bond capacity or program capacity.
- Expansion to a new geographical area.
- Assisting small, emerging contractors with growth plans.
- Single projects or complete programs.
- Contractor experiencing unexpected financial difficulties.
- Job profits are thin and want to guarantee contract funds stay on the project.
- Potential method allowing for an extension of credit with suppliers or other credit.