1. Investment Protection For Today’s Construction Lender

2. What is Surety Bonding? Surety ObligeePrincipal

3. Three Types of Bonds Bid Bond Performance Bond Payment Bond

4. Three Types of Bonds Bid Bond Performance Bond Payment Bond

5. Three Types of Bonds Bid Bond Performance Bond Payment Bond

6. Most Public Projects Require Bonds Federal Law –Heard Act (1893) & Miller Act (1935) State & Local Law –“Little Miller Acts”

7. Surety Bond Requirement Bond requirement as condition of a loan Bond requirements in contract specifications Contractor obtains the bond Prequalification process

8. Obtaining a Surety Bond Stipulate Parties Penal Amount Surety Obligations Construction Contract Project Description Location Verify Data Signed & Dated Surety Bond Form

9. Financial Statement Analysis Opinion Page Balance Sheet Income Statement Cash Flow Statement Background Investigation Account Schedules Investment Strategies Cost Control Mechanisms Financial Statement

10. Business Operations Analysis Organization Chart Key Employee Resumes Business & Continuity Plan Work In Progress Emergency Plan Sub References Line of Credit Recommendations Underwriting Requirements

11. Cost of Surety Bonds Bid BondNo cost Performance Bond ½ - 2% of contract price Payment Bond Included in price of performance bond

12. Construction Default Source: Dun & Bradstreet

13. Construction Risks Contractor Inexperience Weather Delays Economic Downturn Labor/Material Shortages Job Site Conditions Failure Death of Key Employee

14. Construction Risks Accounting Issues Personnel Issues Scope of Business Unrealistic Growth Failure

15. Protection in Default Situations Provide contractor with financial and technical assistance Arrange for a new contractor Rebid the job Pay the penal sum of the bond Surety

16. Surety Bonds Vs. Letters Of Credit Surety CreditBank Credit PremiumInterest Expect reimbursement if loss Repay loan Principal benefit of surety credit Borrower has benefit of bank $

17. Benefits to the Construction Lender Surety ObligeePrincipal Lender

18. Benefits to the Construction Lender Qualified contractors Credit enhancement Subcontractor protection Dual obligee protects contractor Surety fulfills contract in case of default Lender

19. Surety Bonding is About... Financial Security Construction Assurance

20. For More Information Surety Information Office www.sio.org | sio@sio.org SIO is a joint initiative of The National Association of Surety Bond Producers (NASBP) and Surety & Fidelity Association of America (SFAA).