Once the surety bond producer collects all the necessary information, he or she submits it to a surety company underwriter. The underwriter takes an in-depth look at the contractor's entire business operations and must be satisfied that the contractor is capable of completing the project.

The underwriter may request a meeting with the contractor to form his or her opinion and obtain additional information. For example, the underwriter may want more information on the single job size and aggregate workload for all projects, bonded or not, in the contractor's current and projected work program. If the contractor wants to bid on a larger than usual project, the underwriter will want to know whether it is prudent for the contractor to undertake it from a risk/reward standpoint, how it fits into the current work program, how the project will be financed, and a projection of the return.

Although it may seem as if surety underwriters focus on the contractor's finances and financial structure, they are also interested in other elements of the contractor's business. The contractor's organization, track record, and approach to a job, once established, are not generally questioned with frequency if the contractor's results are consistent. However, should there be significant changes in ownership or key personnel or the contractor decides to move into a different type of construction or geographic area, this information should be shared with the surety along with any other changes in the contractor's capabilities or the way the contractor conducts business.

The contractor's financial situation fluctuates from day to day, from job to job, and consequently is the area that is subject to the greatest scrutiny. When applying for bonds, the contractor must be aware that once the surety is satisfied as to the technical ability to perform, it will then review the financial results of performance and translate that into a decision on the firm's present and future ability to pay bills, finance additional undertakings, and accept or mitigate risk. The numbers are the scorecard that tell all parties how well the contractor is performing.

Next: Prequalification Process