As Manson revenues have steadily grown since our founding in 1905, so has our relationship with our surety company, Liberty Mutual. This year, Manson celebrates our 70-year relationship with our surety partner. Such a long-term business relationship is rare and something to be valued.
In the construction industry, project owners, contractors, and subcontractors each rely on the ability of the other to obtain surety bonds. To understand the dynamics, I sat down with Jim Binder, a broker for Propel who has worked with Manson for over 40 years, to discuss the importance of the surety relationship in the construction industry.
John Heckel (JH): Why are surety bonds important, and what do these bonds guarantee?
Jim Binder (JB): Most importantly, on federal projects (and most all public projects), if you are unable to post the mandated surety bond(s), you cannot bid or perform the work.
There are many types of corporate surety bonds: bid bonds, performance and payment bonds, and material supply bonds. For example:
• A performance bond guarantees the project will be completed per the terms of the contract.
• A payment bond guarantees laborers, subcontractors, and suppliers will be paid in accordance with public statutes.
• Bid bonds guarantee to the project owner that the responsible low bidder will enter into the contract for the bid price and will provide the required performance and payment bonds.
JH: What is the role of a surety broker?
JB: As Manson’s surety broker, my role is to represent Manson to the surety and facilitate the relationship. This process involves “painting a word picture” to the surety about any project Manson is bidding. This includes explaining the scope of work to the surety and the resources required to perform the work (e.g., labor, Manson equipment, permanent material, and subcontractor costs). The surety is also interested in important contractual issues such as project completion time and liquidated damage assessment.
JH: Does the surety consider the ethical culture of a company? JB: Absolutely. Surety underwriting is based upon the three “Cs” of underwriting: Character, Capacity, and Capital. A contractor’s reputation, integrity, and ethical business practices are critical to the surety in the underwriting process. Ultimately, the surety must satisfy themselves that the contractor will fulfill the terms of the contract and that they have the right expertise, personnel, equipment, and financial resources to complete the work.
JH: How do a broker and surety contribute to Manson’s success?
JB: As I previously stated, Manson’s ability to perform work depends on the ability to bond the work they bid. Bonds provide the financial assurance your customers require and guarantee that the work will be completed in accordance with the contract.
JH: How is bonding capacity determined?
JB: Manson’s financial position, its experience, and past performance on projects of similar size, complexity, and location are evaluated by the surety. After this detailed underwriting process, and if all the criteria are met, the surety agrees to support the contractor’s desired surety program. The surety will provide a “line of authority” indicating the value of single projects and an aggregate program they would be willing to support.
JH: Does the surety evaluate project risk?
JB: Yes. The broker and surety are an independent second set of eyes in assessing the risk of a project and discussing those risks with the contractor. The surety can also provide a legal review of the owner’s contract if requested.
JH: Manson and Liberty Mutual have partnered for 70 years, and you have been our surety broker for over 40 years. What does that say about our relationship?
JB: Relationships matter. Character and ethics matter. Open communication and transparency are key to building trust between partners. A 70-year relationship means that the two parties trust each other. A strong relationship with the surety leads to increased bonding capacity and support for future projects, which allows for Manson’s continued growth.
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