From Texas to Florida to New York, cities, counties, states and the federal government are all spending money on publicly funded infrastructure projects.
When you combine that with a tight labor market for skilled contractors, it means that there are enormous opportunities for contractors seeking to get bonded for these projects for the first time.
Also, while the private sector economy can fluctuate from boom to bust, infrastructure always needs to be built and rebuilt. This can provide contractors with stable access to work during downturns.
It can also allow contractors to grow their business and develop a bonding line for the future that they can apply to both publicly and privately funded projects.
However, contractors should also be aware that getting bonded for publicly funded projects have their own set of challenges.
Here are eight things that contractors should be aware of when applying for these projects.
1. There Are More Forms
For private projects involving a private obligee, there are usually standard forms such as the A.I.A. bonding forms that are used. When applying for publicly funded projects, there are more stakeholders and by extension more forms.
Publicly funded projects may require specific bond forms. These forms can vary between municipalities, counties, and states and each may have its own set of requirements. Some may be restrictive to the point that insurance carriers may have trouble accepting them.
2. Requirements Are More Stringent
Publicly funded projects can’t afford to take risks, so placement of coverage is not automatic, and the vetting process for contractors may be more involved.
Projects requiring public money often require the contractor provide a detailed overview of their finances in order to qualify for the bond. This may include a written application, business and personal financial statements, A/R Reports, bank reports and other paperwork. This is similar to the process that Ox Bonding uses to review contractors.
3. A “T-Listed” Surety May Be Required
Some publicly funded projects may require that the company providing the bond is on the U.S. Treasury Department’s list of approved sureties. This doesn’t just apply to federal projects. Almost every county in Texas requires bonding through a “T-Listed” surety to be considered for publicly funded projects.
4. Labor Requirements May Be More Strict
Publicly funded projects are more likely to require strict adherence to specific labor standards. Workers may need to be paid at union rates or according to local prevailing wage requirements. If a contractor wants to take advantage of these opportunities, they may want to use a dedicated payroll service such as Ox Bonding’s Discounted Payroll Service through ADP. This allows contractors to track wages and stay compliant with state and federal department of labor regulations.
5. Contracts Should Be Scrutinized
In some cases, public contracts can be one-sided in favor of the obligee. That’s why it’s important that the contractor reviews the terms of the contract carefully to make sure that there isn’t any language that can negatively impact a contractor’s ability to successfully complete a project.
For example, are liquidated damages high? Are the terms under which they can be assessed overly strict? If yes, contractors may find their profits disappearing by the end of a project or worse, ending up losing money.
6. Make Sure the Project Is Manageable
While it may be tempting for a contractor to take on a publicly funded project to grow their business, taking on a project that is outside the scope of their abilities can be a recipe for disaster.
Contractors should perform an honest assessment of their abilities and ask themselves if they’ve ever successfully completed a project at this scale. They should also ask this question of the agent and other partners that they can trust.
This is where having an in-house estimator can be helpful. If you don’t have one, Ox Bonding can provide an assessment as a part of its bonding process.
7. Expect Delays in Payment
Publicly funded projects are often subject to public bureaucracy, that means payments are likely to take more time than they would with a privately funded project.
On publicly funded projects it’s not out of the ordinary that contractors won’t receive payment for 60-90 days after requisitions are submitted.
Contractors should make sure that they have sufficient cash flow to cover expenses. Otherwise, they may face delays making payments to vendors and to their own team members. This is where having access to a Requisition Cash Advance can help contractors to meet their commitments until they receive payment.
8. Invest in Expertise
Looking for help getting your contractor clients bonded for publicly funded projects? Ox Bonding’s Contractor Credit Program can help. Our team of construction experts will review your contractor client’s financials as well as their work history to ensure that they have the ability to successfully complete the project. Also, because our requirements to apply for a bond are similar to those requested by publicly funded projects, your contractor clients will have everything they need to submit a successful application.
Once your client gets the project, we can provide our Project Accounting Service, Requisition Cash Advances, and Discounted Payroll Service to help them to better manage their funds and complete the project.
Looking to take advantage of Ox Bonding’s Contractor Credit Program? Download an enrollment application or call us today at (877) 55-THE-OX.