The 3C’s of Surety: Character, Capacity, and Capital.
Character: When analyzing character, the underwriter will consider personal credit, including that of the principal’s spouse, business credit, bill pay history, management experience, past judgments and/or liens, standing in the community, among others. Essentially, if you are lacking in any character issues it doesn’t mean you won’t get a bond, but it does factor into the decision making process. Key components: honesty, transparency, and continuous qualitative analysis.
Capacity: This is essentially the contractor’s capability to complete the work. The underwriter will examine company staff, estimating team, supervisory skills, project management, internal controls, management and others. This is a critical element to the picture. Having superior capacity to help manage the complex nature of construction will help qualify a contractor. Key components: experience, track record, business plan and execution, and bonded obligation being underwritten.
Capital: This is the money and financial resources a company possesses – and at the end of the day, is the most important “C.” Profitability, working capital, cash, credit lines, debt to equity ratios, equity, personal financial strength, all factors into the capital assessment of a company. The old saying “cash is king” holds true in many ways with bonding. Key components: periodic qualitative analysis, financial ratios, and liquidity sources.