Secrets of Bonding 154: Be A Bean Counter

It’s not hot. No one has it on their business cards. It may not be in your official job description. But this article is the beginning of his new vocation as an official. Bean counter!

An important area of ​​the bond is the “Guarantee Contract”. Refers to bid guarantees and performance of construction contracts. When we set up a new account, a bail capacity amount is set and individual bail requests are processed within that line. It is possible for a customer to use the full capacity of their line, then our underwriting department might consider granting an exception to support the additional work.

Efficient line management can minimize the cases where an exception is needed. This is where the counter bean comes in.

We manage bond capacity the same way a bank manages a line of credit. A series of individual transactions (vouchers) can equal the total amount of capacity (referred to as “aggregate”). Bank lines of credit work the same way. For the bank or bond client, it is advantageous to maximize available credit. Prompt notification of bid results helps achieve this goal.

The Importance of Reporting Bid Results Immediately

• When an offer bond is approved/issued, the underwriter debits the amount against the added capacity. Nevertheless, the total amount of the contract is used, not the dollar value of the bonus offer. Example: A 10% bonus offer for $100,000 actually uses $1 million of added capacity. Therefore, when supply is known to be not likely to result in the award of a contractthis fact must be reported so that we can restore capacity.
• Detailed bid results are needed on low bids in order to process the final bonus. Example: Our guy has a low offer of $5,000,000. The second bidder was $5,400,000. The third bidder was $5,550,000. Since our bid was less than 10% below the second bidder (the bid margin), the adequacy of the contract amount is supported. If our client was more than 10% short of the second bidder, there would be a further evaluation before proceeding with a final bond.
• Bid Margin: In cases where the bid margin is excessive, it is important to have a immediate discussion with us. If there is an error in the calculation of the offer and the contract price is inappropriate, there is a limited period of time to withdraw the offer without penalty (such as a bid guarantee breach/claim).
• Low offers may be for amounts less than the original offer approval. Example: We approve an offer for an estimated contract amount of $9 million, but the actual offer is $8,500,000 due to last minute changes and reductions. Therefore, when the low bid results are reported, $500,000 in capacity is reset to the total.
• Postponements: Sometimes deals are postponed at the last minute, with no immediate rescheduling date. The approval of the offer can never be used. When an offer dies on the vine, we immediately restore the ability.
• Withdrawal – Sometimes clients decide do not bid a project after ordering the bid bond. They may have determined that the plans are unclear or unacceptable. Let us know so that the capacity is restored.

If you are now impressed enough with the importance of keeping these little details in mind, you can put on your green visor and declare yourself a
Official bean counter. It’s not glamorous, but
it is necessary for the correct management of the bonus account. (Really,
us I think it’s glamorous!)