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QUALIFICATION PROCESS |
SETTING A BONDING LINE AND INDEMNITY AGREEMENTS
Surety companies generally like to establish a bond line of credit for both single job size and total aggregate workload. Keep in mind that the aggregate is based on the cost to complete your work, not original contract price, and that includes all projects regardless of whether they are bonded or unbonded.
When the qualification process has been completed and a surety company has agreed to provide bonds, you will be asked to sign a general indemnity agreement. This indemnity will be required of the corporation, as well as the stockholders and their spouses.
Since the bonds you need are guaranteeing your performance and the payment of your bills, the surety fully expects that you are capable of living up to those obligations. If the unfortunate circumstance arises, however, and you are unable to, the surety expects you to use whatever means are at your disposal, including bank credit or personal funds.
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The surety can advance its own funds, guarantee credit at a bank, or find someone else to complete the contract. If the surety does this, they expect to be reimbursed for the money's expended on your behalf. The indemnity agreement is the vehicle used to assure reimbursement from the company that has failed and the principals of that company. It also assures that those individuals will stand fast in the face of problems and use their talents and know-how to resolve the difficulties. This is important, because in the past there have been numerous instances of people who, having no individual responsibility to assure, have merely dumped a problem in the lap of the surety without attempting to offer any aid in solving it. They have walked away and left the surety to fend for itself, a situation that generally makes the solution to the problem more difficult and more expensive.
Since the vast majority of construction companies are owned and operated by individuals or small groups of individual stockholders, the element of character becomes vitally important in a surety's analysis of your company. Your willingness to stand behind your company and support it with your personal assets is a very important consideration to a surety. In a sense, you are being asked to put your money where you mouth is, and you
should view it in that light.
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