What Contractors Need to Do to Bid on Larger Projects

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What Contractors Need to Do to Bid on Larger Projects

Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.

Are You Ready to Make the Move?

To land bigger projects, you have to get bigger. That’s a simplistic way to say that you must demonstrate the capacity to successfully execute any project you bid on.

If you’re hoping to grow your business by winning bids on bigger jobs, you’ll need to prove that you have sufficient capital, equipment, workers, construction industry experience, administrative and management talent, credit, bonding capacity, and whatever else it will take to convince project owners that you have what it takes to run with the big dogs. You’ll also need to have subcontractors and suppliers with the capacity to meet your needs. If the ones you’ve been working with can’t scale up to support you on larger projects, you may have to expand your network.

Cash Flow Considerations

The bigger the project, the more important it is to be able to estimate and track costs accurately. That can be significantly more difficult for larger projects, especially until you have a few under your belt. You certainly don’t want to find yourself unable to pay your workers, subcontractors, and suppliers because you’ve underestimated those costs or overestimated your ability to cover them until your next billing against the contract.

That’s why you need to maintain good enough credit to qualify for low-rate financing if necessary. Better yet, build up an emergency fund as a cushion if you find yourself short on cash at some point. You may also be able to negotiate a down payment from the client at the beginning of a large project.

Working on larger projects can require more construction equipment than you currently have. But that doesn’t mean you should run out and buy more just for the purpose of bidding on larger jobs or even if you are awarded a larger contract. Most heavy equipment of specialized construction equipment can be leased or rented. Even large, successful construction companies rent or lease their costly equipment. It simply doesn’t make sense to tie up a lot of capital to purchase if it will be used consistently for the majority of your company’s monthly work hours.

Risk Management

Both public and private projects carry certain financial risks—the bigger the project, the greater the risks. Project owners invariably have certain insurance and bonding requirements to indemnify them against losses due to job site accidents, natural disasters, poor workmanship, contractor default, and other causes. Make sure you can document your current insurance coverage, bonding capacity, and financial strength. Impeccable bookkeeping will make it easier for you to obtain additional insurance or surety bonds when you need them for larger projects. It also will make it easier for you to prepare cost estimates that are accurate enough for you to be reasonably confident that your bid price will give you a comfortable profit margin.

Build Your Bonding Capacity

If you haven’t been bidding on public works projects, you might not have much experience with construction surety bonds. While they are mandatory for most government-funded projects, federal, state or municipal, they’re not commonly required for smaller private construction projects. But if you’re planning to move up to larger private projects or get into government contracting, you’ll need to understand how surety bonds work. You’ll also need to be able to qualify to purchase them at a favorable premium rate; which means having good credit, demonstrable financial stability, and a track record of successfully completed projects.

“Bonding capacity” refers to the maximum dollar amount a surety bond company (“surety” for short) is willing to guarantee for a contractor, per bond, or in the aggregate for multiple construction bonds. As you start to take on larger projects, you’ll need to establish a relationship with a surety that will meet your bonding needs now and increase your bonding capacity as your business grows.

The construction bonds you’re most likely to need are bid bonds, performance bonds, and payment bonds, though some projects may require other types of surety bonds, such as maintenance bonds, subdivision bonds, or site improvement bonds.

The most important thing to understand about construction surety bonds is that you, the contractor, are legally obligated to pay all valid claims against the bonds you provide to project owners. The surety will lend you the money to pay a valid claim, but you must repay that debt to the surety. That’s why your financial strength and creditworthiness are key to your ability to purchase surety bonds at a favorable premium rate.

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Our surety bond professionals will help you grow your revenue by maximizing your surety capacity. Call us today!