Secrets of Bonding 149: Be a Bond Fixer

Being a problem solver is a great way to offer value to your customers. When it comes to bail bond issues, do you have any creative solutions? Are there any tricks up your sleeve that would make your customer say “Mr./Mrs. Bond Fixer, I’m glad I called you today!”

Well, try to solve these bail problems. They may have more than one good solution, but I’ll give at least one for each at the end.

1. The owner of the company is willing to give personal compensation, but the spouse refuses. Your solution?

2. The underwriter has approved a performance bond, but a surety is required (money the contractor allows the bond to hold as a security deposit against potential bond claims). Your solution?

3. The subcontractor is required to provide a P&P bond, but no guarantee will support it. Your solution?

4. To support a Performance Bond, the underwriter requires a CPA Revised Financial state. The client did not anticipate this and only produced a (lower quality) build report at the end of their last year. Your solution?

5. A property owner has awarded a project to the contractor, but is required to post a performance bond to the local municipality. The underwriter declines this stating that “there is no contract to cover the performance bond”. Your solution?

6. The company’s working capital is too low. The main problem is that the Accounts Receivable were overdue at the end of the fiscal year. Your solution?

7. A former excavation contractor can’t get a bond because his net worth is too low and his debt-to-equity ratio is too high! Your solution?

Feel free to post your ideas on how to fix these link issues.

Possible solutions:

1. Compensation – Get the spouse to sign a “non-transfer agreement” that prohibits the transfer of the indemnifiers’ assets. Other possibilities: Spousal compensation that excludes certain assets, limited compensation with a maximum dollar value, or trigger compensation that is active only in special circumstances.

2. Collateral – Can another party put up the money? It could be in the form of a loan to the business owner. Perhaps an interested subcontractor or supplier will put it up so the contract can continue (and they get the job). How about using Funds Control with a hold that charges the escrow account for contract funds as the job progresses?

3. No subcontract bond: The general contractor could add a retention clause to the contract or increase it in lieu of the bond (hold some money until completion as a security deposit). On a short-term subcontract, make a lump sum payment for the full amount of the contract at the end when the job is successfully completed.

4. Build FS – Have the CPA come back and do the additional work to update the report. Sometimes, if it is late in the fiscal year, the underwriter may proceed with the bond issue based on proof that the next CPA statement will be a review. Obtain a copy of the commitment letter from the CPA.

5. No contract: the subscriber is right. There is no contract with the municipality, it is with the owner of the property. In either case, a bond on the owners’ contract would be for the wrong amount. A Site or Subdivision bond is the right way to protect the interests of the municipality. It would guarantee the construction of “public improvements” such as roads, sidewalks, sewers, etc. Caution: The property owner must be the applicant for this bond (not the contractor!) or at least be an indemnifier.

6. Slow receivables: Analysts reject slow receivables based on the expectation that they will never be collected. Get a current update on A/R list collections as of the date of the financial statement. If they have been collected later, they are included in the analysis of Working Capital despite being old at the date of the SF.

7. Low NW: After years of operation, depreciation can wipe out the value of heavy equipment assets on the balance sheet. Document the present value to recover these dollars for financial analysis. Get a copy of the equipment float and a current appraisal to determine the current “forced sale” value.

8. Other problems – Do you think we listed all the possible joining problems in this article? No, we’ve left a few million! When you have tough joining problems, or just need expert help, give us a call. That’s all we do! We have the markets and the experience.