Contractors feel sticker shock on project bonding

Like many small and mid-sized contractors, Alisa Acosta came out of the recession simply happy that her Reno-based company, A.R. Acosta Ltd., was still in business.

But as the company geared up to resume its growth when the economy recovered, Acosta was frustrated that the damage that the recession had inflicted on her company’s finances limited its ability to get the bid and performance bonds it needs to win federal contracts.

“The lack of bonding was killing us,” says Acosta, whose firm handles federal contracts ranging from renovation of federal buildings to managements of campgrounds at national parks.

A.R. Acosta Ltd. got some relief through a Small Business Administration program that provides a guarantee to the surety companies that issue bonds.

The SBA says it issued 14 guarantees covering $3.95 million in bonds in Nevada its last fiscal year, an increase of about 60 percent over the prior year.

But other contractors continue to struggle with the availability and cost of the bonds that allow them to pursue work.

The higher prices and hassles involved with many bond requests are coming as a shock to contractors, says MaryJo Hawkins, who works with bonding of mostly small and mid-sized contractors at Comstock Insurance Agencies Inc. in Reno.

The shock is particularly difficult for contractors who are learning that bonding companies are looking beyond their professional credit histories when they are pricing a bond.

Today, their personal financial woes during the recession — a foreclosure, repossession of a boat — also may sound alarm bells among bonding companies.

Builders aren’t being turned away by bonding companies — but it’s still a hassle.

“There’s a bond for everyone,” says Hawkins. “It just depends on how much you have to pay for it.”

Facing stiff competition, contractors usually can’t simply pass the higher cost of a bond along as part of the job. The cost takes a bite out of their profits.

Even the SBA’s guarantee program comes at a cost, says Acosta.

She’s used SBA guarantees and a relationship with California’s HUB International Insurance Services to get bonded for ever-larger projects.

But the SBA program requires financial statements prepared by a CPA every year, at a cost of about $4,000 annually, Acosta says.

The costs of bonding come at a time that insurance costs already are chewing into contractors’ margins, says Cheryl Justin, an agent at Comstock Insurance.

Workers compensation cost are rising, partly because premiums are based on payrolls that are beginning to show growth.

Justin says changes in the way that loss experience is calculated also has pushed up workers compensation rates for some builders.

General contractors, focused on their own safety programs, increasingly ask subcontractors to document their own workers compensation experience.

Costs of general liability insurance also are creeping up for contractors, Justin says, mostly because those policies, too, generally are based on a firm’s total payroll.