1. Why Do Contractors Fail?

2. Failure Rates Source: US Census: 1989-2002 Business Information Tracking Series

3. Failure Rates 2002 - 2006 Source: BizMiner Failure Rates 2002 – 2004 2004 - 2006 Trade Contractors29.0% 24.4% Heavy Highway27.4% 21.6% Nonresidential Bldgs25.0% 17.5% Industrial24.6% 14.6%

4. Failure Rates

5. Surety Losses & Profitability

6. Prequalification Financial Statements CapacityOrganization References Credit History Banking Relationships

7. RISK High Materials prices Unreasonable owners Onerous contracts Shortage of qualified, skilled workers Contractor Failure Risks Insufficient Capital Slow collections Low profit margins

8. RISK Materials Shortages Over Expansion New Owner Inclement Weather Contractor Failure Risks Sub Failure Change in Scope of Work Inadequate Management

9. Contractor Failure Accounting issues Management issues Personnel issues Performance issues Unrealistic growth Failure

10. Accounting Issues Inadequate cost tracking systems Estimating or procurement problems Underinsured Improper accounting practices

11. Management Issues Leadership changes No continuity plan when key person dies or becomes disabled Changes in scope of business

12. Personnel Issues Key staff leave company Character issues

13. Performance Issues Unrealistic growth Change in type or scope of work Poor project selection Onerous owners Unsettled claims & change orders

14. Unrealistic Growth Unrealistic Growth Increase in Backlog Work Shorter Lead Time

15. Factors Beyond Control Materials Shortages Site Conditions Inflation Labor Difficulties Weather Delays Economic Downturn Failure

16. Warning Signs That a Contractor Is In Trouble...

17. Ineffective Financial Management System Tight cash flow Slow receivables Past due bills Vendors demanding cash

18. Bank Lines of Credit Constantly Borrowed to Limit All credit fully secured Lines not renewed

19. Poor Project Management Inadequate supervision Not getting best prices Projects behind schedule Claims Litigation

20. No Comprehensive Business Plan No contingency plans No “road map” No goals No objectives

21. Poor Estimating & Job Cost Reporting Revenue & margins decrease Continued operating losses Loss of bonding capacity Bid jobs too low

22. Communication Problems Disputes between contractor and owner Poor communication from field to management

23. Loss of Loyal Customers Decreasing reputation for company’s ability to perform contracts on time & within budget

24. Tips for Contractors To Avoid Default Rights & responsibilities Capabilities Growth & overhead Causes & warning signs Communication Contractors

25. Tips for Contractors To Avoid Default Contract Bond forms Qualify surety Qualify owner Surety Relationship Contractors

26. Tips for Contractors To Avoid Default Construction-oriented CPA Adjust overhead Bank credit Conserve capital Bond subcontractors Contractors

27. Claims RightsObligations Resolution Completion Expectations

28. Understand bond Cooperate Comply with contract Don’t overpay Lien waivers Timely default Termination Tips for Owners – Navigating a Claim Owners

29. 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).