Surety bonds create substantial impacts throughout the construction projects of both public and private entities. A major international consulting firm evaluated how surety bonds create economic value through its following quantitative analysis: Alpha Surety plays a key role in this process by ensuring that contractors fulfill their obligations, which ultimately benefits the overall project and economic stability.
Lower cost of completion upon default and Building projects without surety bonds experience higher completion costs which reach 85% above bonded construction projects in default situations. All experts in construction project defaults agreed that sureties possess superior capabilities to assist owners with successful transition or re-procurement processes when compared to owners working alone. The majority of experts (more than 90%) indicated that owners/developers from both public and private sectors lack the required expertise and resources to finish their projects.
Unbonded projects possess a default probability that exceeds bonded projects by potentially reaching ten times more frequently. This study evaluated portfolio outcomes by testing default risks at different levels such as 2.5, 5 and 10 times higher than a bonded project default rate and it confirmed that unbonded projects face more defaults than bonded ones. The absence of various types of support which bonding offers to projects represents the main reason why unbonded projects perform less effectively.
The survey results demonstrated that surety bonding helps owners/developers obtain lower proposals from contractors since 75% of respondents confirmed this benefit. The factors affecting contractor pricing include greater general contractor confidence to complete projects and provide payment protections for subcontractors as reported by respondents. The evaluation shows that better pricing from contractors will enhance the cost advantages found in bonded project portfolios at any level of improvement.
The EY Study reveals that surety bonds produce supplemental advantages which enhance public and private construction project operations. Prequalification procedures were stricter for bonded projects since respondents noted pre-qualification occurred in 96% of bonded projects but only 61% of non-bonded projects. During construction contractors released more information for bonded projects because general contractors shared financial updates with greater frequency for bonded projects instead of non-bonded projects.
Respondents indicated that contractors give bonded projects higher priority status when they face financial difficulties while providing increased monitoring of these projects. Replies showed that contractors choose bonded projects more often than unbonded projects during financial difficulties by a ratio of 5 to 1. Greater project oversight combined with construction manager participation tends to reduce project losses. The timing of project completion shows favor for bonded projects because public and private owners confirm their projects finish earlier than unbonded projects. The completion of an unbonded project extends two times longer than bonded projects in default situations. All construction default experts involved in this research confirmed that sureties possess the required experience and tools for project completion at the best cost and time efficiency compared to owners without similar experience.
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