As any Canadian city-dweller knows, construction season is upon us - tearing up our favourite streets and parks during the only outdoor workable months of the year.
When governments contract out construction of hospitals, boulevards or public green spaces, they require surety bonds to ensure the project actually gets completed.
Underwriters assess contractors on their ability to complete construction, on time and within budget, something that Ryan Loy, a surety associate at Approved Surety & Casualty Inc., said heavily favours large contractors. The problem with that, however, is that the vast majority of contractors are small to medium sized without vast financial assets to rely on - or are new to working on government projects.
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That’s why a capital administration program, sold through brokers, is meant to extend an underwriting line of relief to smaller contractors.
“They’d give me an estimate for the project, because construction projects are segmented in various phases (like 25%, 50%, 75% to completion) - I’d already know the dollar amount budgeted for material as well as quantitative measures like labour hours,” Loy said. “I would then send supporting documentation (to an underwriter) such as invoices, pay stubs, receipts. I would verify them and I would ensure that they are in accordance with the actual budget.”
Loy, who’s an accountant by trade, said underwriters are put at ease by a capital administration program because they’re alerted of red flags and there’s “bi-directional communication”.
“It puts them (underwriters) at ease because someone is actually controlling the flow of money whereas without the capital administration program, there would be no-one there,” Loy noted. “Most of the reasons for defaults on construction projects are bad financial management.”
