CEO Comments

Be a Teacher: Our Opportunity with Owners & Opinion-Makers is Now!

How often do we remark to ourselves and to each other that owners and other opinion-makers do not understand the importance or value of surety bonds? If we are being honest, I imagine it is a much too frequent refrain. Though the concept is ancient, surety, it is safe to say, is fairly obscure and somewhat complex. Clearly being referenced in the Code of Hammurabi and in the Bible does not necessarily bring great familiarity with stakeholders, much less the general public. We therefore cannot rely on someone beyond our immediate community to make the case for surety. Nice thought, but it just won’t happen. Why should it? If we cannot pitch our product, who will and who should? It simply is not rationale to expect non-surety professionals to conduct our industry public relations efforts.

And yet, are we not guilty of that expectation? Have we not all taken too much comfort for far too long from the existence of legislative and regulatory mandates to require the purchase of surety bonds? Can’t we all recall conversations with contracting officers who routinely scripted solicitations containing bond requirements but could not readily articulate the basic functioning and purposes behind bonds? What does that tell us?

As a community, I believe we now are getting a more complete sense of our vulnerabilities. Enacted in 1935, seven years before the founding of NASBP and during the heyday of competitive bidding, the Miller Act is a magnificent and venerable statute, but the realities of modern procurement methods combined with the paucity of federal funding for construction and infrastructure projects mean its reach is narrowing. The same dynamic repeats itself at state levels. Each legislative season, NASBP government relations staff, all two of them (three if you count me) plays offense and defense on legislation and regulations introduced in 50 states and in Congress. We tackle the myriad legislative insults to surety requirements: bond threshold increases, bond waivers, bond amount reductions, individual surety exceptions, excessive financial strength ratings, among many other matters. Our General Counsel, in turn, fights the many infractions against surety interests that occur in other contexts through crafting advocacy letters and emails and making phone calls. We often receive levels of help from local members, but this remains a small community. We have an enviable record of successes, but I sometimes cannot help but think we are like the little Dutch boy addressing the water leak with nothing more than his pudgy finger blocking the hole in the dike. I also believe that a majority of those matters that we tilt against regularly have their basis in misperceptions and misunderstandings, rather than any intentional disregard for surety bonding.

Surety bonding needs to be transitioned from the thought of it being mandated or required to that of being desired and appreciated. But people cannot appreciate a thing of which they know little or nothing. If teachers shape lives, then being a teacher of the merits of the surety product can shape the relevancy of our industry for the immediate future. No surety professional should be content to rely on others to educate stakeholders on the importance of surety bonds; all need to realize the importance of their personal engagement in this effort. That engagement may take many forms: for example, volunteering on civic boards, writing editorials for local press, meeting with local elected leaders to acquaint them with what you do and why, presenting to groups of design professionals, lenders, contracting officials, etc. NASBP activists and staff are proud to spearhead these efforts at the association-level, but the truth is that a larger population of “teachers” is needed to be truly impactful, to move us beyond the level of merely remaining in place and fighting off issues as they occur.

I believe that the current economic and political environments present us with critical opportunities to make our case. As a whole, the surety industry has enjoyed a slate of profitable years with an attendant increase in capacity. The construction economy, particularly private construction, appears on the upswing. There is broad, bipartisan political acknowledgement of the need for finding solutions to our staggering infrastructure underinvestment (easier said than done, I admit).

What will happen if Congress actually passes a significant infrastructure package, however? History tells us that losses increase significantly as construction firms assume more work. In the present environment, contractor margins remain low and have never fully returned to pre-recessionary levels. Contractors also are facing critical skilled worker shortages, as workers left the industry during the recession for other careers and never returned. Proposed restrictions on immigration may exacerbate the industry worker shortage. Further, project owners increasingly are seeking to leverage the competitive construction marketplace by transferring financing and construction risks of various magnitudes to contractors, which, in turn, seek to push them down to subcontractors. There is much promise, and much can go wrong.

At just such a time, the value proposition for surety bonds should be at its highest. What could be more critical to prudence and good government than careful discernment of contractor qualifications and the back stopping of ever scarce public funds used as loans, grants, or direct payments to finance needed construction and infrastructure projects? The answer is obvious to us; now we need to make it obvious to owners and to opinion-makers.

NASBP asked noted construction industry educator and author Thomas Schleifer, Eminent Scholar Emeritus of Del E. Webb School of Construction, Arizona State University, to examine construction risks in light of the current economic climate for construction. He generated a white paper, titled “Mitigating the Hidden Risks in the ‘New Normal’ Construction Environment,” where he posits: “The construction industry has not demonstrated proficiency at recognizing, managing and mitigating hidden risks, which compounds problems and escalates the potential for business and project failures, making the third-party screening and financial protection of surety bonds more critical than ever.” This white paper can be accessed here; it provides poignant context for your discussions with project owners and others about the present need for bonds.

Since the beginning of the year, NASBP and SFAA have developed additional tools to make you the best teacher possible. SFAA worked with Governing Institute to author a primer on the importance of bonding public projects. The article, titled “A Government Leader’s Guide to Bonds Using Surety and Fidelity Bonds to Protect Taxpayers, Empower Businesses and Enable Innovation,” appeared in Governing Magazine. A PDF, resident on SIO.org, is available by clicking here. NASBP has produced a frequently-asked questions about bonds publication for owners; the publication’s actual title is “Answers to 32 Questions Public and Private Owners Ask About Contract Bonding,” and it can be accessed by clicking here. These are the latest of many resources that both organizations have developed to help educate on the importance of bonding, many of which can be accessed at SIO.org or on their respective websites: surety.org and nasbp.org.

Being a teacher of the surety product is, no doubt, placing additional burdens on busy shoulders. It will require the extra effort of all of us to seek out and be mindful of ways to be in front of owners and opinion-makers. Thomas Edison once said: “Opportunity is missed by most people because it is dressed in overalls and looks like work.” Let’s not forego these opportunities simply because it requires a little more time and diligence. I love to celebrate anniversaries, especially diamond ones, and hope that NASBP and the surety industry will celebrate many more. If you really want to get serious about teaching, make plans to come to the NASBP Federal Legislative Fly-in on June 6 – 7 in Washington, DC. To register, click here.