Surety Industry: Overview

Abstract

The surety bonding process can be very frustrating for the construction contractor. However, if the contractor has a solid understanding of the process and knows what the surety requires, the frustration level may be substantially reduced and the chance of success greatly improved. Some contractors believe surety bonding has become increasingly difficult to obtain during the past few years. To the extent that sureties have become more cautious in their underwriting, this observation is on target. Sureties suffered significant and unexpected losses in their contract bond business in 1984, 1985, 1986, and 1987. The significant risks, uncertainty, losses, and small compensation in surety bonding forced surety companies to adopt more stringent underwriting criteria and have caused other surety companies to discontinue writing the business. Hence, some contractors (particularly those that are weak financially, managerially, or technically) have been forced to take only unbonded work or discontinue operations. This paper provides a description of the surety industry and analyzes its evaluation and underwriting procedures in an attempt better to educate owners, contractors, and design professionals thereby enhancing their ability to work within the surety bonding process.