While these efforts will produce long term benefits, in the short run they add to the expense of underwriting a surety portfolio. These efforts do not address some very serious issues that surround increasing losses, nor do they fully capitalize on the technological resources.

The Surety Connection Project is an effort to restructure the way surety is administered to reduce expenses, mitigate losses, and improve the surety product itself making it a better alternative to products like Subguard.

Fundamental Challenges

The surety industry is different now than it was just a decade ago. The “back to basics” approach will not alter the outcome or profitability of underwriting efforts. Technology has made impacts that will not be reversed. The cooperation between owners, contractors and subcontractors is becoming increasing more factual than friendly. Armed with facts, disputes and resistance are more common, with the facts being contested more than ever before. Sometimes it seems the construction industry has evolved from a cooperative effort among contractors, to a litigious group comprised more of attorneys and experts that argue the facts, than contractors in the field. Attorneys and experts arguing, do not build buildings, create infrastructure, or add value to any project. Instead they decrease the efficiency, raise the costs, and increase the risk to the contractor and their surety.

Somehow the surety industry must capitalize on the efficiency automation could provide. Automation would help reduce expense and improve the services to the construction process that is not dependent on the legal system.

Capitalizing on Technology

The fundamental problems that the Surety Connection project strives to answer are:

Reduction of the costs to administer the implementation of the surety program is achieved by employing technology. This takes advantage of the vast amount of project information, not efficiently captured by the surety.

Reduction of the “blind” aspect of administering the maintenance of the surety program is achieved by employing technology. This takes advantage of the vast amount of project information, not efficiently captured by the surety

Mitigation of the loss exposure once information is available by creating surety products that promote a constructive, cost effective construction based resolution instead of a legally based one

Bid List Connection
A co-development project with a University partner to work with public agencies to encourage them to post their projects on the internet, or transmit their projects electronically with an open standards data file that the surety industry could use to process the underwriting. This will also help facilitate the delivery of an electronic bond. The project data is managed by the contractor client and uploaded to the surety agent and surety company.

Surety Access Connection
A Microsoft Access based application that surety agents could use to work with Bid List Connection.

Project Status Connection
A co-development project with a University partner to extract project data from a project owner’s internet site and provide the respective surety will real time and aggregated data on specific projects.

Surety Bridge Fund Connection
The development of a new surety product that eliminates one of the most prevalent causes of contractor failure, the “unfunded directive”, where contractors are forced to perform work that the owner does not acknowledge as a charge order, but does acknowledge needs to be performed.

The policy is activated when a bonded contractor is faced with an unfunded directive that could cause a significant drain on the cash flow reserves of the contractor. It is often cited in the surety industry that most contractors don’t fail, they run out of cash. By providing a tool to bridge the financing in those situations, the contractor would be able to perform the work efficiently and complete the project as efficiently as possible.

Taken together the Surety Connection Project is a group of components that work to exploit the information that is available electronically. The goal is to improve the cost effectiveness of the underwriting while establishing a link between project and surety. That link then becomes the loss mitigation tool in the event the project runs into difficultly. The Surety Bridge Fund builds on that foundation to provide the real loss mitigation tool, secured dispute financing.