2. Failure Rates: 2002-2012 Source: BizMiner Building, heavy/highway, and specialty trade contractors In BusinessSurvivorsFailure Rate 853,372 (2002) 610,357 (2004) 28.5% 850,029 (2004) 649,602 (2006) 23.6% 1,155,245 (2006) 919,848 (2008) 20.4% 897,602 (2009) 702,618 (2011) 21.7% 918,483 (2010) 696,441 (2012) 24.2%

3. Financial Strength CharacterExperience Equipment Credit History Banking Relationships Prequalification

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

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

6. Reasons for Contractor Failure Accounting Problems Change in Leadership Scope of Business Material/ Equipment Shortages Unrealistic Growth Failure Labor Difficulties Lack of Experience

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

8. Management Issues  Leadership changes  No continuity plan when key person dies or becomes disabled

9. Personnel Issues  Key staff leave company  Character issues

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

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

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

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

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

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

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

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

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

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

21. Tips for Contractors to Avoid Default  Rights & responsibilities  Capabilities  Growth & overhead  Causes & warning signs  Communication Contractors

22. Tips for Contractors to Avoid Default  Contract  Bond forms  Qualify surety  Qualify owner  Surety Relationship Contractors

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

24. Claims RightsObligations Resolution Completion Expectations

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

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