Category: Management & Planning


How Safety Performance Makes Getting Bonded Easier and Cheaper

Every contractor knows that safety in the construction field isn’t just about getting protection hats. It extends to all aspects of a projects’ execution, and the well-rounded management and safety maintenance of a company.

That’s why safety performance is a major factor in obtaining a lower surety bond cost – or even getting bonded at all.

Considering the importance of contract bonds for contractors’ ability to work on public projects, safety performance becomes an even more significant point on construction companies’ agendas. This means everything from employer and public safety to safeguarding of equipment and property.

Let’s go through the major ways in which safety affects contractors’ bonding. Higher safety performance means:

A Solid Financial Base

Accidents and low safety standards negatively affect the reputation and financial status of a construction company. This goes beyond direct compensations for specific mishaps, as it impacts the liquidity and net worth of the firm. How, you might ask?

For example, insufficient training of personnel is a major reason for injuries and also for serious project delays. Sound safety culture and policy that includes adequate employee training and information, as well as monitoring and evaluation of risks would prevent such situations. This, in turn, minimizes the chances of accidents and ensures timely project completion, both of which mean preventing financial losses too.

There is another take on the link between safety performance and stable finances that contractors should not forget. Besides direct costs for actual accidents and project delays that result from such mishaps, there are further costs involved if risk is not managed properly by contractors.

These are the hidden costs of an accident that include OSHA citation and higher insurance costs, as well as the need to recruit new employees and to replace damaged equipment. All of these are considerable – and unnecessary expenses that can cause serious harm to a contractor’s reputation in the field and, of course, to the company’s profit.

How does the financial status tie in to the bonding process? Well, to underwrite a bond, a surety company reviews the stability of a contractor from all corners.

This includes the strength of the company’s safety program to prevent accidents, its ability to manage potential pending claims if such occur, and its overall financial health. In many intricate ways, safety and financial stability go hand-in-hand.

Easier bonding process

During the bonding process, a surety company needs to make sure that the construction company in focus meets a variety of financial and safety requirements.

It reviews a myriad of factors, including the current balances, profitability, workforce capacity, ability to meet project deadlines and to fulfil contractual obligations towards employees and subcontractors.

The goal of this detailed examination is to get a clear idea whether the contractor is able to meet all requirements of a project in a timely and quality manner.

Naturally, complete compliance with all necessary points comes with adequate safety management. When a sound safety program and active safety education for personnel are in place, the risk of accidents is minimized. This means workforce capacity is expected to be steady, and the probability for fulfilling obligations – on time – is much higher.

Without assurance that a contractor meets all requirements and potential obstacles, a surety company cannot provide the needed bonding. The reason is that a surety bond, in fact, is a form of credit given to the contractor. Thus the surety provider operates as if giving a line of credit, so the requirements are strictly set.

Lower costs for bonding

The safety performance of a contractor is a major factor, not only in their ability to get bonded, but also in the surety bond cost.

When a surety company is assessing whether to underwrite a bond for a company, they are measuring the risk that it presents on all levels. Once it’s deemed that the bond will be provided, the level of the premium is determined to a large extent on the same principle.

Of course, the foremost consideration is the financial status of the contractor. Profit, growth, debts and claims are all determinants in the formation of the bond price. If a contractor is considered high-risk, she’ll have to spend more on the bond.

However, as we discussed earlier, stable finances are not possible without a sound safety policy and a good reputation with institutions, partners and clients. Thus, safety performance affects quite directly the bond price that you will have to pay in order to get bonded and be able to undertake a new project.

We hope that this overview makes clear the strong link between safety performance and surety bond costs. After all, a good safety record and a sound safety policy are musts for getting bonded – and for getting a lower bond price.

What is your experience with safety and bonding? We’d love to hear about it in the comments section below.

Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping contractors get bonded and start their business.


Advanced tech and a fresh approach is helping construction firms ‘go lean’

Challenges are forecasted for the construction industry in 2015, but they are different from the trials industry leaders faced in recent years. After a difficult start to 2014, the industry is recovering, adapting to new regulations and techniques, contending with labor and material shortages and implementing advanced technology. These factors create risk and potential setbacks, as well as tremendous opportunity for greater success in the new year.

The United States economy has continued to gain momentum, but the construction industry still dealt with the hangover from the downturn in 2014. The first six months of 2014 provided few new building opportunities. This was coupled with additional regulations, including healthcare reform and labor reporting, causing more hurdles for businesses. The sluggish market and time required to adapt to new guidelines bred an overall environment of cautious advancement. The turn came in mid-2014 as the market surged with a year’s worth of opportunities to be completed in just months. While the increase in work in 2014 was welcomed, those new regulations and requirements created unexpected extra costs that extend into 2015.

Those increased costs are just one issue that carries into this year as the industry works its way back from the recession. Companies continued to downsize last year, either through attrition or continued layoffs. The decrease in available workers could make it more difficult for companies to keep up with demand, which make joint ventures a likely path forward in the near-term. Companies will team up to handle the increasing demand, and owners may return to selecting a project team on a best value, rather than least expensive, basis.

While joint ventures allow for progress and probable industry growth, the labor-shortage problem is not going away. Even with a steady increase in demand, the industry probably won’t see a rise in labor. To begin to solve this dilemma, technical schools are working to revive and redesign their programs to attract a new generation of students to the construction field. In addition to improving education programs, passing comprehensive immigration reform will increase the labor pool and have an immediate, positive impact in construction. However, both of these measures will likely be a several year process, which means that the industry must rely on other measures, such as new building techniques and industry-wide collaboration, to continue its forward momentum.

Experimenting with new building techniques is always an evolving process, but it also provides a method to help address the labor shortage. Traditional practices involve bringing materials to the job site to erect a building. This takes time and is expensive compared to prefabrication techniques. Prefabrication is just what it sounds like: assembling a structure in a warehouse or other manufacturing site, transporting completed sections of structure to the site and putting those sections together to create the final structure. Long used in the housing industry, the practice is finding inroads in the commercial and industrial spaces as well. The approach allows businesses to take into account conditions of materials, natural elements, budget and labor, as well as providing a means of fixing issues more quickly than when building on site. Prefabrication techniques are advancing quickly due to technology improvements, which aid in reducing costs and completing builds with less labor.

Co-construction is another technique industry leaders are using to help combat labor shortages and limited resources. Co-construction is essentially allowing one team to build upon another’s work to collaboratively complete a project. While more companies are creating these teaming agreements, there is some risk involved. Co-construction leaves room for error and miscommunication. Effective co-construction incorporates sharing accountability in a fair and reasonable manner, while not creating an undue burden on the owner. Still, the practice has the potential to better serve and benefit owners as well as the teaming companies delivering the project.

Technology advancements help mitigate risks associated with co-construction as well as provide a platform for the industry’s early adopters to effectively progress in the coming year. Companies are implementing those technologies that allows for faster construction processes and more efficient use of the limited labor pool. Although some industry leaders are less comfortable with the ever-changing technology, the need for faster, more efficient techniques will likely outweigh, or at least lessen, any reluctance.

The construction industry is at an exciting turning point right now. We’ve collectively weathered the worst of the storm and see a bright path forward to create new industry standards for the coming year and beyond. In many ways, the downturn has forced the industry to reexamine its practices, technologies and overall approach to delivering projects. The opportunity for increased efficiency due to co-construction, prefabrication and advanced technology is great, but success will depend, in part, upon the open-mindedness of industry leaders and the incorporation of multigenerational ideas of how to improve the construction process.