Safeguarding Contractor Surety Credit

Contractors often face challenges that are out of their control. But there are areas to focus on that can mitigate the unpredictable nature of the business and help safeguard a contractor's surety credit.   

Four Strategic Focus Areas for Contractors

Internal Controls

Without proper job costing and accounting, a contractor is flying blind. Tightening up the job costing process across the lifecycle of projects provides a window into the business that can yield a much more accurate picture. Imbalances can be spotted more quickly, and actions taken to offset them.

Procurement Protocols

Proactively dedicating time and resources to finding and approving alternative material sources, and developing partnerships with key suppliers creates a solid foundation to counter unpredictable supply chain challenges.  

Labor management

Labor shortages are an ongoing problem for the construction industry.  Individual contractors can provide training, offer better pay or benefits, and look to unexpected sectors, like veterans or active-duty military looking to transition careers, to attract new people.

The construction industry can invest in training programs and internships, offer apprenticeships, and create relationships with community colleges and vocational schools, all of which can contribute to a more consistent pipeline of qualified workers.

Contract Language

Contracts can be written to provide additional controls. Understanding the various contract terms, common clauses, and how they can be written to support the contractor, is key. For instance, to combat volatile market conditions affecting the supply chain, contractors could consider implementing the following:

1. Bid language that provides an adjustment allowance for increased material costs above the pricing reflected in the bid. The bid should clearly state how long bid prices are good and at what point adjustments can be made in the event awarding of the contract is delayed.

2. A price escalation clause in the construction contract to pass material price increases to the owner. The price escalation clause should specifically identify applicable materials and establish the parameters for a price adjustment.

3. A change order provision that allows for modification to the contract due to material price increases. The clause should identify the type of documentation required to substantiate the change order request due to increases in material pricing.

A combination of good business practices and well-crafted contracts can make the difference during volatile times. Contractors can always look to their surety for advice and support, Merchants’ construction expertise and familiarity with markets and industry trends can assist contractors in protecting themselves and avoiding potential pitfalls.

How do I get a Surety Bond?

Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.

All information provided is subject to change.