Construction Executive Magazine asked several leaders in surety bonding about the risks involved when bidding on projects outside their niche during an economic downturn. Read their responses here.
Here is what Andy Thome, President of J.W. Terrill, a Marsh & McLennan Agency in St. Louis, had to say:
When branching out to geographies or niches outside of your core discipline, proceeding with caution is the best approach.
For example, after the 2008 financial meltdown, there was a significant flight to federal work. The government speaks a unique language and operates in a world known as FAR (Federal Acquisition Regulations). While transparency abounds, FAR rules are substantially “different” than those in the private sector. Many contractors underestimated the backroom demands and utilized their “go-to” subcontractors, which were also new to the process. Contractors that chose to engage with a government contracting specialist performed better than those that didn’t, but few of the general contractors that dove into the government sector have stayed the course.
In another instance, multi-family and senior living facilities have been a hot market for years. While many contractors have performed well, several problems arise when general contractors utilize “residential plus” subcontractors versus commercial light subcontractors. Depending on the plans, owner and geography, the quality of the building envelope system has been an ongoing source of concern. Construction defect (CD) litigation is on the rise, and negotiating an equitable contract that has proper contract “hygiene” can be crucial to a project’s success.
Challenging your team to talk through the risks associated with a new opportunity is a great way to vet the project. Including your surety agent and insurance professional in the discussion (if you feel they are qualified to have a seat at the table) puts you in the best possible position to make sound decisions as you endeavor to move into a new niche or region.