“A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).” — National Association of Surety Bond Producers
To remain a good surety bond risk, it’s best to pick jobs where performance seems certain. That’s become harder with climate change. Extreme weather can throw a wrench in a construction project. If it’s too hot, cold, or slippery, workers cannot perform their jobs safely, requiring a pause in the project. A hurricane, flood, or wildfire can damage materials or equipment, causing construction delays while you await replacement supplies. Planning for these weather contingencies in construction bidding has become exponentially harder.
Using historical data to bid jobs may not yield the accuracy you need. Throw inflation and continued supply chain woes into the equation, and it’s difficult to estimate costs and schedules. Then, add LEED certification, regulatory requirements, and hiring challenges to the mix. You may be in unfamiliar territory where expenses and timetables are less clear.
Yet the insurance company wants to know you can deliver with certainty on your obligations. Before issuing a surety bond, they seek assurance you’ll complete the construction project on time and on budget, with the contractually agreed features and quality. How do you create this certainty in construction bidding amidst climate change, inflation, and other factors outside your control? Short answer: You can’t, but you can make a good faith effort with these six risk mitigation steps:
Are severe heat waves likely in a proposed construction location? What’s the flood risk? How will temperature and moisture affect your building materials? How many days can employees work safely? Is construction practical, given these and other variables?
Shortages, supply chain challenges, and inflation continue to affect the pricing of materials and equipment. Think through how prices for materials might fluctuate during the project and build buffer for that into your bid. It’s difficult or impossible to renegotiate materials pricing mid-contract.
Additionally, the demand for skilled workers currently exceeds the supply, meaning you may need to pay more to get the necessary workforce. Will it be easy to find employees, or could inability to hire affect your project timetable? Read the spec carefully before bidding to ensure your pricing reflects the required staffing.
Inflation's impact on financing also plays a crucial role. Borrowing costs have increased, making it more challenging to secure financing for projects. Bank lines of credit have become more restrictive. This places more pressure on construction firms to bid accurately and conservatively.
Many construction projects now require LEED (Leadership in Energy and Environmental Design) certification or adherence to green building standards. This influences the materials you use and your construction methods. Will you need to hire employees with specialized expertise? Does the project qualify for green building incentives that may offset some of the construction cost?
How might storms or extreme temperatures slow you down? Add extra days into your schedule as a buffer and determine how delays will affect labor costs. You may need to increase your bid to account for these expenses.
Heavy rain, extreme temperatures, wind, and other storm-related conditions can damage materials, harm equipment, and hurt people. A disaster preparedness plan can make the difference between a two-day construction delay and a multi-month stoppage.
Think about where you’ll keep your tools, materials, and equipment for this project. Is there a protected location, naturally sheltered from the wind? Or a spot that’s elevated, so it won’t flood in a heavy rain?
Where will your people shelter in the event of a sudden-onset storm? Proper planning means fewer accidents and injuries.
Do you need temporary storage solutions to protect materials from sun, rain, or snow? Do you have procedures to clear pathways and tie down everything securely? Protecting your materials means you won’t need to replace them after a storm, and your crew can return to work more quickly afterward.
Failing to include essential safety measures in a construction bid can result in financial losses due to non-compliance. Involve a safety specialist early, before you prepare a bid.
Implementing OSHA heat illness prevention standards will require additional workplace precautions and employee training. Employers will need to educate workers on the dangers of heat stress, so they can spot someone in trouble and know what to do. You’ll need a formal method for monitoring employees for signs of heat illness and ensuring ample water and rest breaks. Establishing formal procedures for tracking the heat index and local weather forecasts will help ensure worker safety. Putting these safeguards in place costs money, so you’ll want to factor this into your bids.
Begin surety bond discussions early in the process, long before signing a contract — to ensure you’ve done everything you can to qualify for the best terms. Stay attentive to regulatory changes and how they might affect your costs. Monitor climate and economic news.
Be selective about which construction jobs to bid and take. This may require saying no to a high-profile project in an area prone to catastrophic weather events. Over time, handpicking the right projects and bidding them accurately can help your construction business make more money. It also positions you to get surety bonds for your future projects.
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Connect with the Risk Strategies Surety team at surety@risk-strategies.com.