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Bond Companies Finding Failed Contracts

by Bill Graham

Lessons to Learn and Lead by

This is not new news, but the list of issues bond companies are finding on failed contractors in this down economy (on any failure, I see the same list)


What are the biggest mistakes  (top down)

  1. Failure to manage overhead  (fixed cost commitments and building up too fast or just over spending )
  2. Straying from core competencies  (know what you can do and what you can’t – contracting is always harder that you think)
  3. Inadequate sub-contractor qualification process (they are your team and you own their risks too often)
  4. Acceptance of inappropriate contract terms (lawyers and bond companies understand this well and so do we)
  5. Maintaining inadequate financial systems (you need to know, or know what you don’t know)

 What are major root causes of financial difficulties?

  1. Insufficient capital / excess debt   (it takes money to make money)
  2. Low profit margin jobs  (no surprise we need profit)
  3. Mismanagement (I see it all the time – don’t take your eye off the ball for one minute, and ask for help of your team)
  4. Insufficient Sales  (sell, sell, sell – the right customers and opportunities)
  5. Inadequate job cost controls  (We have given you cost control tools. Use them.)
  6. Poor Estimating (lived this one but almost died)
  7. Weak execution (Good Project Managers & good Foremen are extremely valuable people)

What is most important factors in approving Surety credit?

  1. Balance sheet strength (can they pay no matter what so we don’t have to)
  2. Company management strength (see success in avoiding mistakes above)
  3. History of profitable projects (history is a good predictor of the future)
  4. Experience in project type (means a lot)
  5. Amount of backlog (everyone has their limits and when exceeded bad things always happen)

Onward and upward into 2012 and beyond!

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