2. Failure Rates

3. Failure Rates
Building, Heavy/Highway, Specialty Trade Contractors
25.4%
29.3%

4. Failure Rates

5. Surety Losses & Profitability

6. Prequalification Financial Statements Capacity Organization References
Credit
History
Banking
Relationships

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

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

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

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

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

12. Personnel Issues
Key staff leave company
Character issues

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

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

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

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

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

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

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

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

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

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

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

25. Expectations
Rights
Obligations
Resolution
Completion

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

27. For More Information