Government Construction Contracts

May 9, 2023In the newsadmin

Construction firms highly covet commercial government contracts, as public spending on construction projects exceeds hundreds of billions of dollars yearly, making them a lucrative opportunity. While most construction firms rely on government contracts as their sole source of revenue, others bid on various public and private jobs.

Public construction contracts are governed by lengthy laws, which vary based on the agency. However, there are some consistencies between requirements that all agencies abide by. Read on to learn more about bidding on government construction contracts.

Construction Bonds
Contractors often need to guarantee bids, construction work, and payments to subcontractors or suppliers by government agencies. Moreover, the terms of the bid should be obeyed. Typically, three parties are involved: the obligee, the principal, and the surety. The three most common types of bonds required on construction projects are bid, performance, and payment.

Pre-Bid Site Visit
To allow contractors to better understand the project at hand, owners will often allow site visits. Often, contractors can ask questions regarding the bid or network with relevant contractors. Sometimes, these meetings are mandatory, and failing to attend will result in bidding ineligibility.

Competitive Bidding
Budgets are top-of-mind for most public construction projects, and most often, contractors can bid on projects after an architect completes the full plans. Prior to the bid date, projects must be advertised in one way or another. The lowest responsive, responsible, and eligible bidder will be given the job.

Special Programs
Women, minorities, and small-business owners should have an equal opportunity to bid on projects, so a number of state, local, and federal agencies have created programs to ensure they are awarded accordingly.

Davis-Bacon Act of 1931
This federal law forces contractors to be paid local wages based on earnings paid to the various classes of laborers working on other local construction projects. Varying from state to state, wages will differ based on location.

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At Construction Bonding Specialists, we work with new and experienced contractors to find the most satisfactory bond solutions. As a distinct surety-bond-only agency with decades of bonding experience, we work to discover surety solutions for all types of cases ranging from ordinary to challenging. Call us at 248-349-6227 to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Types of Construction Bonds

April 5, 2023Surety Bondsadmin

The industry offers a large variety of surety bonds, which are required to bid or work on all public works projects, private construction, remodeling, and new construction.

The different types of surety bonds include bid bonds, performance (contract) bonds, and payment bonds. These bonds offer protection for the project owner, taxpayers, investors, etc., associated with private projects. Typically, projects need all three bonds.

Bid Bonds
These bonds guarantee that the contractor will accept a job if they win the bid. They are required by federal law on all projects over $100,000. State-sponsored public work projects also usually require bid bonds. If the winning contractor decides not to accept the job, the project owner is able to submit a claim to cover costs linked to evaluating new contractor bonds.

Performance Bonds
Sometimes called contract bonds, they guarantee that the contractor will fulfill the entire project, abiding by laws and industry standards. If they fail to do so, the project owner can file a claim to recover any financial loss resulting from another contractor re-doing the work.

Payment Bonds
These bonds guarantee that the contractor will pay if the work is not completed in accordance with the terms of the contract by the workers, subcontractors, or suppliers. A claim by any of the aforementioned parties can result if the contractor fails to remit payment.

Contractor License Bonds
The only type of construction bond that is not project-specific; they don’t apply to a single project. These bonds guarantee that the contractor will conduct business in a lawful and ethical manner, meeting industry standards. Some states require all contractors to be licensed at the state level to operate legally.

In terms of cost, the contractor usually pays only a small percentage of the required bond amount established by the project owner or licensing authority. A surety bond company establishes a premium rate for each applicant based on their personal credit score, industry experience, and personal/business financial statements. Those in good standing usually pay one- to three percent of the total bond amount as an annual premium.

Construction Bonding Specialists is a leader in obtaining construction surety bonds. We can assist you in winning more jobs through bond terms. Contact us today to learn more.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Bond Markets Fluctuate Based on Rising Interest

March 9, 2023Surety Bondsadmin

At the end of 2021, the 10-year treasury note reached only 1.5 percent, creating low-interest rates. Less than a year later, in October 2022, the rates peaked at more than four percent, which hasn’t been seen since April 2010. These unusual bond market fluctuations force investors to constantly recalibrate to keep up.

Because of the inverse relationship between bond yields and prices, bond issues fall when yields rise. When the demand decreases, bond issuers typically turn to higher yields, which lowers the value of the lower yields already on the market.

Higher interest rates often go hand-in-hand with higher inflation, following long-term growth and trends. An inflation surge between the first quarter of 2021 and mid-2022 saw a Consumer Price Index (CPI) level of 9.1 percent, the highest reading since 1981. Bond markets usually fluctuate based on upcoming financial policy shifts.

Bill Merz, head of capital markets research at U.S. Bank Wealth Management, said, “Bond yields rose in 2022 primarily because the Federal Government pivoted to a much more hawkish position, as investors anticipated aggressive interest rate hikes to rein in inflation.”

An economic downturn can result from issues such as war, supply constraints, and pandemics, all of which have happened in recent history. Since these various events can disrupt the economy, consumer spending often wavers. Interest rates could skyrocket if the economy gets a second wind and accelerates growth. However, long-term yields could fall if the economy takes a downturn.

Let’s get to the point: what does this all mean for bond investors? In short, buying bonds during a high-interest rate period will yield higher results.

Merz said, “We’re putting greater emphasis on core bond holdings. We believe that bonds offer compelling defensive characteristics relative to stocks. Our emphasis is on high-quality investment-grade taxable and municipal bonds as well as a dedicated exposure to short-term U.S. Treasury investments to manage overall risk exposure should interest rates continue to rise in the near term.”

The recent housing market activity has paved the way for a beneficial supply-and-demand balance in the mortgage market.

“This remains a time when investors are likely to benefit from holding more high-quality assets and fewer volatile assets than in a typical period.”

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Vehicle Dealer Bonds Increased

February 14, 2023In the newsadmin

Since January 23, 2023, the Michigan Uniform Vehicle Dealer Surety Bonds (also known as Michigan auto dealer bonds or Michigan motor vehicle dealer bonds) has increased from $10,000 to $25,000.

Mandated by Michigan Compiled Laws 257.248, the surety bond requirement has yet to be distributed to all motor vehicle dealers. Any individuals or business entities who sell or deal in five or more motor vehicles within a 12-month period are subject to the code. This ensures the public will receive compensation for any damages if the auto dealer is not in compliance with the dealer licensing law.

Regulated by the Michigan Secretary of State, the Michigan legislature enacted the license to guarantee dealers engage in ethical business practices such as remitting payment for taxes and fees. Specific licenses are required for auto dealers by the State of Michigan, depending on the nature of the business. Dealers will need to acquire a license for each type of business they are active in.

The different types of Michigan Dealer Licenses are:

Class A: New Vehicle Dealer
Class B: Used Vehicle Dealer
Class C: Used Vehicle Parts Dealer*
Class D: Broker
Class E: Distressed Vehicle Transporter*
Class F: Vehicle Scrap Metal Processor*
Class G: Vehicle Salvage Pool*
Class H: Foreign Salvage Vehicle Dealer
Class R: Automotive Recycler*
Class W: Wholesaler*

*It is important to note that classes C, E, F, G, R, and W are exempt from the surety bond requirement.

The Michigan Department of State requires that existing bonds be increased with a rider amendment document provided at the next renewal. The deadline for filing paperwork to increase the Michigan auto dealer amount is December 31, 2023. Any dealers who do not file the required documents before the deadline will potentially have their licenses canceled.

All existing bonds are subject to the increase at the next renewal term, so dealers who have active bonds already on file with the state of Michigan can expect the bond amount to increase by inflated premiums on their next renewal term. Any newly paid renewal invoices should be filed with the state of Michigan.

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Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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Digital Bonding and Surety for Construction Firms

January 4, 2023Surety Bondsadmin

Digital bonding in the construction industry is much more common these days, primarily due to the introduction of digitization into the surety industry. Especially since the pandemic, when many everyday activities suddenly were launched into the digital realm, digitization of sureties for the construction industry has only gained momentum.

Paperless, fully digital bonding platforms are up-and-coming. McKinsey and Company recently reported the world will need to spend roughly $57 trillion on infrastructure by 2023 to keep up with GDP expansion. To meet that immense demand, the construction industry will be forced to embrace more digital options to support organization, efficiency, and finalization.

Surety digitization in the construction industry has a bright future since time and cost savings can be recuperated. Managing a range of developments can be challenging without a specific digital solution to procure an effective bidding and bonding process. Two essential areas that can help in this realm include advanced analytics for intelligent asset management and digital collaboration, such as moving to paperless projects.

Construction firms can immediately benefit from the simplicity and overall capacity of employing technology in surety and underwriting management systems by implementing cloud-based software. Those already immersed in the digitization transition have found their business growing more rapidly. With the bidding and approval of contracts fully automated, firms can minimize time-consuming offline work, instead focusing on workflow efficiency.

Some benefits of digitization include better managing workflow, automating underwriting, managing portfolios, improving document functions, forecasting sales productivity, and connecting with brokers in real-time.

The construction and surety industries have adapted in previous times of uncertainty, such as the global pandemic, supply chain obstruction, and overwhelming worker shortages. Due to the industry’s apparent resiliency, the future will continue transforming as needs arise.

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/

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