Failure Rates

Failure Rates 2011-2016 Building, Heavy/Highway, Specialty Trade Contractors 2011-2013 2014-2016 25.4% 29.3%

Failure Rates

Surety Losses & Profitability

Prequalification Financial Statements Capacity Organization References Credit History Banking Relationships

Contractor Failure Risk Low profit margins Onerous contracts Slow collections RISK Unreasonable Owners High Materials Prices Insufficient Capital Shortage of qualified, skilled workers

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

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

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

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

Personnel Issues Key staff leave company Character issues

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

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

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

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

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

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

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

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

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

Tips for Avoiding Default Rights & responsibilities Capabilities Growth and overhead Causes and warning signs Communication

Tips for Avoiding Default Contract Bond forms Qualify surety Qualify owner Surety Relationship

Expectations Rights Obligations Resolution Completion

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

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