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Even as construction spending continues on a relatively steady upward path in 2022, construction contractors are facing a variety of risks and uncertainty. In times like these, having a trusted surety partner provides both peace of mind and protects contractors' opportunities for future growth.

Contractors overall are optimistic about their prospects in 2022, but the vast majority still have concerns about material costs, supply chain disruptions and worker shortages, according to the Associated General Contractors ("AGC") of America's 2022 Construction Hiring and Business Outlook. The AGC of America's nationwide survey shows risks are prevalent for this sector.

For example, most contractors are experiencing lingering challenges from the pandemic, including project delays or cancellations. Only 35% of respondents reported no delays or cancellations of projects in 2022, while for 2021 46% had a project postponed that has been rescheduled, and 32% had projects postponed or canceled that have yet to be rescheduled. Rising costs were a common reason reported for these delays and cancellations.

Loss events in contract surety tend to be low-frequency, but they can be severe. That's why contractors need a strong surety partner to help mitigate project risks.

Selecting a surety partner

What should contractors consider when choosing a good surety partner? For starters: 

• Collaboration. A good surety will do a lot of listening, and ask questions to understand the customer's priorities. It's hard to achieve a good solution unilaterally.

• Conscientiousness. Some surety companies will offer a price quickly, leaving the details of the deal for later. It's better, however, for a surety company to focus on the details of the deal first, seeking an alignment of interests, and then consider pricing. Better outcomes for both parties result when each has clarity and confidence that the deal structure will meet their needs and expectations.

• Consistency. When market conditions are volatile, a surety partner that's rock steady is a comfort. Consistent risk appetites and consistent approaches to construction risks are hallmarks of good surety. This consistency enables construction firms to know what to expect, making it easier for them to tender bids for projects.

• Claims service. When claims arise in construction contracts, some surety companies defer to the court system to sort those out. A good surety partner, however, sees claims service as a key part of its value to customers. When claims happen, a good surety will step up to advocate and try to find a solution that works for all involved.

• Commitment. A surety partner builds trust through a long-term commitment to deliver solutions, and not cutting and running when market conditions get tough. Commitment is a two-way street. Construction companies that continually seek to learn and get better, and take an introspective approach to their business, can make great customers for committed and stable surety companies.

• Advisory capabilities. A big part of the value a strong surety partner can offer is a different viewpoint on the challenges that construction companies face. For example, with all the uncertainty in the market — inflation, supply chain disruptions, labor shortages — now could be a good time for construction firms to focus on improving their bottom line, rather than growing their top line. With construction spending on the rise, and federal infrastructure legislation set to expand that further beyond 2022, this might seem counterintuitive to contractors. Working with a surety partner that has extensive experience, however, offers the benefits of financial protection and a sound approach to business that can position contractors for long-term growth.

Thinking long term

The best relationships in surety are long-term ones, where the interests of surety and customers align. Sometimes such alignment takes time to achieve, but it's worth it. As an example, a construction company owner approached Berkshire Hathaway Specialty Insurance for a surety solution. Due to misalignment at that time, we were unable to work out a solution, but we wrote that company several years later when circumstances changed. When a customer has a need we can meet, we are ready, willing and able to step in and help.