As the COVID-19 crisis continues, uncertainty surrounds the construction sector with many sites closed, funding put on hold, availability of materials in question and many contractors having to furlough staff until the crisis abates.
surety bonds and covid-19

Financial protection for a contractor’s inability to fulfil contractual obligations is a complex topic in the current market place. It’s difficult to predict how long this crisis will last, and in many cases non-completion of work – or at least a severe delay in completion – is seemingly inevitable.

In response to these highly unusual market conditions, it is unsurprising that we are experiencing surety underwriters requesting more details of contractors before deciding on whether to support a new bond requirement. As a result, we anticipate a reduction in facility levels offered by sureties. Companies that have been able to rely on one or two surety providers will likely require additional suppliers as underwriters seek to reduce their exposure.

In addition to the usual questions around profitability, order book and cash flow, underwriters will ask for more disclosure around the individual contracts they are bonding, which sites remain open or closed, and whether the contractor is entitled to extensions of time and money resulting from this tragic event.

Contractors will need to be clear on how they will navigate through the crisis

Improving your chances of securing a bond

Despite the circumstances construction companies find themselves in, projects will still need to be planned and contracts bid for. While it’s far from business as usual, the risk management and insurance requirements of contractors still need to be met. We are committed to helping our clients secure bond facilities through the Surety market that will provide adequate capacity while freeing up all-important cash flow.

It should be noted however, that Surety providers are being selective on which contractors they will provide support to. It will ultimately be the contractors who can demonstrate they have a plan in place, have access to funds, are on top of their contractual obligations and are clear on how they will navigate through the crisis that will be more successful in securing a bond.

Due to our experience and relationships with the market, Gallagher’s Surety team has pre-empted many of the underwriters’ questions that contractors should be prepared to answer:

  • What mitigating actions and processes are you developing or implementing?
  • To what extent have you been affected by new contract awards being postponed or cancelled?
  • Which sites have been closed and what is the financial impact? Have extensions of time been granted? Are there any contractual disputes?
  • Have you been able to source the necessary materials and supplies?
  • What has been the impact on your subcontractors and their ability to work?
  • Have any employers stopped or reduced payments?
  • Have you been able to reduce overheads in line with any expected fall in revenue? Have any staff been furloughed or made redundant?
  • Have you engaged with your bank or shareholders to ensure availability of funds if necessary?

Preparing answers to these questions, as far as you are able, will help Surety providers understand the challenges you are facing and may help increase the likelihood of securing a bond that will give you adequate cover. Please contact us to learn more about the current Surety market or how to navigate through a bond requirement.