Every contractor knows that safety in the construction field isn’t just about getting protection hats. It extends to all aspects of a projects’ execution, and the well-rounded management and safety maintenance of a company.
That’s why safety performance is a major factor in obtaining a lower surety bond cost – or even getting bonded at all.
Considering the importance of contract bonds for contractors’ ability to work on public projects, safety performance becomes an even more significant point on construction companies’ agendas. This means everything from employer and public safety to safeguarding of equipment and property.
Let’s go through the major ways in which safety affects contractors’ bonding. Higher safety performance means:
A Solid Financial Base
Accidents and low safety standards negatively affect the reputation and financial status of a construction company. This goes beyond direct compensations for specific mishaps, as it impacts the liquidity and net worth of the firm. How, you might ask?
For example, insufficient training of personnel is a major reason for injuries and also for serious project delays. Sound safety culture and policy that includes adequate employee training and information, as well as monitoring and evaluation of risks would prevent such situations. This, in turn, minimizes the chances of accidents and ensures timely project completion, both of which mean preventing financial losses too.
There is another take on the link between safety performance and stable finances that contractors should not forget. Besides direct costs for actual accidents and project delays that result from such mishaps, there are further costs involved if risk is not managed properly by contractors.
These are the hidden costs of an accident that include OSHA citation and higher insurance costs, as well as the need to recruit new employees and to replace damaged equipment. All of these are considerable – and unnecessary expenses that can cause serious harm to a contractor’s reputation in the field and, of course, to the company’s profit.
How does the financial status tie in to the bonding process? Well, to underwrite a bond, a surety company reviews the stability of a contractor from all corners.
This includes the strength of the company’s safety program to prevent accidents, its ability to manage potential pending claims if such occur, and its overall financial health. In many intricate ways, safety and financial stability go hand-in-hand.
Easier bonding process
During the bonding process, a surety company needs to make sure that the construction company in focus meets a variety of financial and safety requirements.
It reviews a myriad of factors, including the current balances, profitability, workforce capacity, ability to meet project deadlines and to fulfil contractual obligations towards employees and subcontractors.
The goal of this detailed examination is to get a clear idea whether the contractor is able to meet all requirements of a project in a timely and quality manner.
Naturally, complete compliance with all necessary points comes with adequate safety management. When a sound safety program and active safety education for personnel are in place, the risk of accidents is minimized. This means workforce capacity is expected to be steady, and the probability for fulfilling obligations – on time – is much higher.
Without assurance that a contractor meets all requirements and potential obstacles, a surety company cannot provide the needed bonding. The reason is that a surety bond, in fact, is a form of credit given to the contractor. Thus the surety provider operates as if giving a line of credit, so the requirements are strictly set.
Lower costs for bonding
The safety performance of a contractor is a major factor, not only in their ability to get bonded, but also in the surety bond cost.
When a surety company is assessing whether to underwrite a bond for a company, they are measuring the risk that it presents on all levels. Once it’s deemed that the bond will be provided, the level of the premium is determined to a large extent on the same principle.
Of course, the foremost consideration is the financial status of the contractor. Profit, growth, debts and claims are all determinants in the formation of the bond price. If a contractor is considered high-risk, she’ll have to spend more on the bond.
However, as we discussed earlier, stable finances are not possible without a sound safety policy and a good reputation with institutions, partners and clients. Thus, safety performance affects quite directly the bond price that you will have to pay in order to get bonded and be able to undertake a new project.
We hope that this overview makes clear the strong link between safety performance and surety bond costs. After all, a good safety record and a sound safety policy are musts for getting bonded – and for getting a lower bond price.
What is your experience with safety and bonding? We’d love to hear about it in the comments section below.
Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping contractors get bonded and start their business.