Scoring Approach to Construction Bond Underwriting

Abstract

This paper introduces a conceptual scoring-based contractor evaluation system to address the problems created by the subjective nature of surety underwriting process. The methodology presented in this paper provides the surety underwriters with an objective tool for estimating the probability that the evaluated contractor would perform in a satisfactory manner with respect to the main decision factors considered in the bond underwriting process. The proposed model could be used by decision makers to prescreen contractors and make underwriting decisions. The paper first discusses the construction bond underwriting process and provides a brief introduction to the scoring technique as the modeling environment used in this paper. Then, the three steps included in the development of the proposed scoring system are presented in detail followed by an example demonstrating the application of the final product.