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9 Warning Signs that Sureties Watch For  

July 24, 2017

Warning signs. They’re sometimes right under our noses and yet we fail to notice them or, worse yet, we ignore them.

surety warning signs
CCIG’s Tom Patton.

If you’re in the surety business, it’s the job of the underwriters on your team to try to spot these signs before anyone gets hurt. They’re the detectives who do the due diligence. That includes a close examination of bank accounts, credit scores, whether anyone involved has a criminal history and more.

What follows is a list of nine indicators that sureties scout for before committing themselves to doing business with general contractors or subs. These all would signal varying degrees of trouble, signs of anything from a potential bond default to full-blown bankruptcy. In other words, if you’re in the construction business, this is what you should expect the surety to look at before it issues you a bond.

  1. Inadequate profit. Are your margins ample enough to cover general and administrative expenses? Wild swings are not what sureties want to see. Also, sureties know that margins may drop off as a job progresses, so they won’t look once and forget about it. Expect regular checks.
  2. Working capital and cash flow. Profit isn’t everything. There’s also the ability to pay bills on time. Sureties will make sure your bank credit lines haven’t been pared back or even shut down. They’ll also look at whether you might have balloon payments on the immediate or mid-term horizon.
  3. Subcontractor problems. Failure of subcontractor(s) to perform or to pay job creditors can spell big problems. Always have, always will. Sureties know this, of course.
  4. Inadequate internal accounting. Are costs being properly recognized? In a timely fashion? Make sure your books are clean!4. The wrong CPA. A CPA with limited knowledge in construction accounting or inability to prepare statements in conformance with industry guidelines is a sure-fire sign that things could go wrong. Hiring an inexperienced CPA may save you money, but doing so is only a short-term play at best.
  5. Unrealistic growth. Sureties look for aggressive expansion in the volume, type and location of your jobs. If things appear to be growing faster than your resources allow, expect plenty of questions.
  6. Divorce. A divorce can be a hugely distracting thing, not to mention sad. Job-site supervision begins to decline, as does management of the in-house duties like tracking job profitability and timely invoicing. Sureties hate divorce.
  7. Outside ventures. Is your money and time being directed to pursuits other than the construction business? Maybe opening that restaurant isn’t such a great idea.
  8. Continuity and other labor issues. Loss of key personnel can damage a company badly. People often leave companies that are in financial trouble. Sureties know this. They also look for failures to pay the prevailing wage and labor shortages. They’re all red flags to the surety.
  9. Defective work. Does this really need any further explanation?

Tom Patton is a Surety Advisor with CCIG. He also is on the board of directors of the Rocky Mountain Surety Association. Reach him at or 720-330-7922.

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