The use of Surety has expanded massively over recent years.
At the start of the Covid-19 Pandemic in 2020; in the initial weeks of lockdown, Surety providers increased the level of financial due diligence required across the board, albeit they continued to issue Bonds. As the impact of Covid-19 settles, the need for high level financial information required by the Surety (Bondsman) unfortunately continues as the global economy feels the impact of the war in the Ukraine.
In view of the above, and because of regulatory factors, banks are looking to de-risk and focus on core/traditional lending as they need to have a clear understanding of their liabilities and the issuing of guarantees goes against this model.
A move away from bank guarantees will result in a switch from an on-demand wording to conditional. Most employers will accept a form of conditional wording and it is in the contractors’ interest to have such a wording as it removes the fear that a Bond could be called without merit during uncertain and challenging times.
Placing Bonds in the Surety/insurance market can impact positively on working capital as it frees up bank facilities. In addition to this, the surety providers also review Bond wordings, steering you away from onerous conditions which could have a negative impact on your business.
Construction has faced many challenges over the last 24 months; the cost of raw materials and labour has increased substantially which has presented a challenge when contractors are operating under a fixed price contracts. As a result, many businesses are reporting losses in their filed accounts however, Surety providers tend to adopt a long-term view and one bad year does not necessarily preclude contractors from exploring the Surety market.
Rates and Capacity
Capacity is key and within the Surety market you can have more than one facility/provider. Holding regular meetings to strengthen the relationships across the market and leverage the support the contractor receive is very important.
Despite continued economic turbulence in the Global market, Sureties continue to issue Bonds and are not currently applying rate increases across the board, each application is based on the contractors financial strength and the Bond wording required.
Market rates can be per annum or flat, they are typically higher than those offered by the banks as Surety providers are not secured creditors in the event of insolvency. The price of the Bond should be highlighted at tender stage together with a provision that any charges for over runs can be passed on to the employer.
With over 30 years’ experience in placing Bonds, Attis have access to the whole Surety market and only partner with suitably rated providers. Working in partnership with Griffiths & Armour, they adopt a creative and innovative approach to ensure clients secure competitive rates for their facilities and have sufficient capacity to support them from the tender stage to execution of the Bond.
If you have any questions about the contents of this article, please click below to submit your enquiry to Client Services Director, Roger Moore.