Build Strong Foundations with Smaller Construction Projects First
It is important to start small with bonded construction jobs.
When you get construction bonds, such as bid and performance bonds, for a public job, you are responsible for completing the entire project according to its specifications. If you don’t complete the job or you complete it, but outside the terms of the contract, a claim can be filed on your bond, which you’re ultimately responsible to pay.
The bonds are guarantees from a surety company that you will complete the job – fulfilling all the requirements written in the contract. Therefore, you should avoid getting in over your head by bidding on larger projects before you’ve had sufficient experience.
If you are a new contractor, the surety company will likely only write bonds for smaller jobs (about $350K and under). The bond limit is for your own protection. You haven’t yet shown the ability to complete larger projects. As you complete smaller projects, your bonding limit will gradually rise.
Also, you don’t need CPA prepared financials for smaller contracts, which can be pricey and difficult for a new business. Start with smaller jobs to learn and allow yourself to become familiar with the entire construction process, from bidding on jobs to completing projects. This will also enable you to develop a strong relationship with your surety company.
As Your Experience Grows, Your Bond Capacity Grows Too
After you have completed several projects without claims and you have nurtured your relationship with your surety company, you can start bidding on larger projects (about $350K+). When your surety company writes bonds for you for a project, they are extending credit to you.
The bonds guarantee you’ll fulfill the contract according to its terms. If you default or your quality of work is poor and cause claims, the surety company will pay them at first. However, they will then require reimbursement from you. Having a relationship built on trust with the surety company is vital to both your company’s and the surety’s success.
Working on larger jobs should increase your company’s overall profit, which makes getting the CPA prepared financial statement that are required for larger bonds less cumbersome.