It’s not sexy. Nobody has it on their business cards. It may not be in your official job description. But this article is the beginning of your new vocation as an official Bean Counter!
An important area of the surety bond is the “surety contract.” This refers to bidding and performance bonds for construction contracts. When we set up a new account, a bail capacity amount is set and individual bail Section Bonds requests are processed within that line. It is possible for a customer to use the full capacity of their line, then our underwriting department might consider granting an exception to support the additional work.
Efficient line management can minimize cases where an exception is needed. This is where bean counting comes in.
We manage the surety capacity in the same way that a bank manages a line of credit. A series of individual transactions (bonds) can equal the amount of the total capacity (called “aggregate”). Bank lines of credit work the same way. For the bond or bank customer, it is advantageous to maximize available credit. Quick reporting of bid results helps achieve this goal.
The Importance of Reporting Bid Results Promptly
When a bid bond is approved / issued, the insurer charges the amount against the aggregate capacity. However, the full amount of the contract is used, not the dollar value of the bid bond. Example: A 10% bid bond for $ 100,000 actually uses $ 1 million of added capacity. Therefore, when it is known that the offer is unlikely to lead to the award of a contract, this fact must be reported so that we can restore capacity.
Detailed bid results are needed on low bids to process to final bond. Example: our guy has a low bid of $ 5,000,000. The second bidder was $ 5,400,000. The third bidder was $ 5,550,000. Because our bid was less than 10% below the second bidder (the bid margin), the adequacy of the contract amount is supported. If our client was more than 10% below the second bidder, there would be a further evaluation before proceeding with a final bond.
Bid Spreads: In cases where the bid margin is excessive, it is important to have an immediate conversation with us. If there is an error in the calculation of the offer and the contract price is inappropriate, there is a limited amount of time to withdraw the offer without penalty (such as a breach / bond claim).
Low offers may be for amounts less than the original offer approval. Example: We approved an offer for an estimated contract amount of $ 9 million, but the actual offer is $ 8,500,000 due to last minute changes and reductions. Therefore, when the low bid results are reported, $ 500,000 in capacity is restored to the aggregate.
Postponements: Sometimes offers are postponed at the last minute, without an immediate rescheduling date. Offer approval can never be used. When an offer dies in the vineyard, we restore capacity immediately.
Withdrawal: Sometimes clients decide not to bid on a project after requesting the bid bond. They may have determined that the plans are unclear or unacceptable. Let us know so that capacity can be restored.
If you are now impressed enough with the importance of taking these little details into account, you can put on your green visor and declare yourself an official bean counter. It is not glamorous, but it is necessary for proper bond account management. (In fact, we think it’s glamorous!)
Steve Golia is an experienced provider of bidding and compliance bonds for contractors. For more than 30 years he has specialized in solving bail bond problems for contractors and helping them when others failed.