WIP Reports Speak Volumes: What Does Yours Say to a Surety?

A construction company’s work-in-progress reports speak volumes about an organization’s competence and financial stability.  What should a WIP report say, especially to the surety using it to extend surety credit? 

WHY WIP?

For top construction companies, WIP reports are a best practice. Used correctly, they can be a powerful risk management tool to identify and address existing issues, avoid potential problems, and inform profitable growth.

For sureties evaluating larger accounts, WIP reports are a requirement. Before extending surety credit, underwriters must assess a company’s operational performance and financial health. WIP reports, both past and present, are important tools to accomplish that. Surety underwriters analyze data in past WIP reports ranging from type of work and size of jobs, to completion rates and profitability. By comparing and contrasting the data across time and identifying trends and patterns, underwriters paint the picture of a company’s historical operational performance.

Delving into a company’s present WIP is just as revealing. Underwriters use data to assess backlog of work and costs to complete, projected revenue, and the number and size of existing projects. They’re looking for red flags; is the contractor taking on too much work?  Are they changing the type of work they’re doing, or the size of their jobs? All of which speaks to capacity. And for sureties, a contractor’s capacity is crucial because of its direct correlation to the surety’s risk exposure if they were to extend surety credit.

WHAT WIP SAYS TO A SURETY

A company’s WIP reports instantly tell an underwriter whether the company’s committed to the process, or not.  A high-quality WIP report’s comprehensive scope and accurate reporting provides the detailed information sureties rely on for their evaluations. A less robust WIP report often uses ‘guesses’ and ‘rounding’, giving the appearance of just-in-time reporting, just to fulfill a requirement. Companies hoping to obtain surety credit should always consider what message their WIP reports are sending.

LEVERAGE UNDERWRITING EXPERTISE

As companies grow, projects become more complex, with higher financial stakes and greater risk exposure, making WIP reports even more important. Surety underwriters’ deep understanding of the construction business, along with their ability to analyze and interpret the data in WIP reports, make them an excellent resource and consultant for contractors who want to utilize WIP to its full potential. Leveraging their surety as a partner, keeping them informed of their ongoing plans, can be very beneficial for a contractor’s profitable growth.

A SCORECARD FOR SUCCESS

For construction companies committed to the process, WIP reports act as a scorecard, giving company leadership an enterprise-wide view of operations. By maintaining detailed, accurate WIP reports and integrating them into your risk management strategies, construction leaders can improve operational efficiency and financial stability. Your message to surety underwriters will be loud and clear, that you are ready and able to take on a larger program to continue your profitable growth.  

5 Areas Sureties Evaluate with WIP

1.       Financial Stability Accurate WIP reports demonstrate a company's financial health, including profitability and cash flow management, which shows sureties a company can meet its financial obligations.

2.       ConsistencySureties look at the regularity of reviews and whether a company uses the information to influence decisions and make course corrections, so when it comes to WIP, consistency counts.

3.       Estimating & Project Management CapabilitiesDetailed WIP reports reflect a company’s competence in estimating and managing projects effectively. Companies that demonstrate they can complete projects on time and within budget are seen as a better risk.

4.       Transparency and Accuracy - Accurate and transparent WIP reports build trust with surety providers. Discrepancies or frequent adjustments in WIP reports can raise red flags, suggesting potential mismanagement or financial instability.

5.       Overall Trends -  Surety underwriters analyze trends in WIP reports to identify consistent patterns of success or trouble. Positive trends can lead to increased bonding capacity, while negative trends may result in stricter underwriting criteria or reduced bonding limits.

Construction companies can use WIP to:

-          track the financial health of each project

-          manage and control costs

-          comply with contracts and pay application requirements

-          forecast cash flow and profitability

-          utilize past cost data for future bids

By focusing on these aspects and maintaining high-quality WIP reports, a construction company can strengthen its position when seeking surety credit and demonstrate its commitment to operational excellence and financial stability.


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.

What is a Surety Bond?

A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.

All information provided is subject to change.