Environmental Contractors vs. “Regular” Contractors
The world of surety can be a confusing maze to most people—especially if you’re new to the industry. In very basic terms, surety is simply a guarantee. It is a guarantee that the person obtaining the surety bond will pay someone, complete something, follow a certain rule or regulation, etc. When it comes to contractors, the surety, for the most part, is offering a guarantee that the contractor will perform the work specified in the contract and pay their suppliers and subcontractors.
When a contractor applies for a surety bond (usually a bid or payment and performance bond), the Surety must analyze the risks involved and determine if the contractor can fulfill their obligation. When the project is a simple construction project, the formula can be pretty simple. If the contractor has acceptable working capital, net worth and experience the bond should be relatively easy to secure.
Things can get messy though when the project involves environmental risks such as asbestos, contaminated soil, hazardous waste or lead paint. Surety companies tend to shy away from environmental contractors because it is harder to determine whether or not the contractor will be able to execute the project and not default on the surety bond.
Since the risk factor with this type of work is so high, it can be very difficult for an environmental contractor to qualify for a surety bond. Environmental sites often have hidden problems and contractors have to have the experience to know exactly how to tackle a job and plan for unforeseen issues that might arise. The surety also has to make sure the contractor knows the federal, state or city regulations regarding the hazardous materials. In addition, the contractor needs to have a large working capital in order to financially manage the project.
Another hurdle environmental contractor’s face is the issue of Reinsurance. Many sureties have Reinsurers that specifically exclude them from bonding environmental contractors. This means the market of sureties willing to support an environmental contractor is somewhat small.
Environmental contractors face many more obstacles than the typical “sticks and bricks” contractors and will ultimately have to work harder to obtain a surety bond. This, of course, is not to say that they cannot find surety support; they just have to find a surety agent who understands their needs and can find them one (or two) of the handful of sureties willing to support this niche market.