Are there large costs and earnings in excess of billings?
– If so, the surety will want to know: • Is the gross profit holding? • Has the owner failed to pay? • Have progress billings not been approved? • Have unapproved change orders been included in the costs? • If the job is complete, why hasn’t it been fully billed? • Are billings in excess of costs? – Overbillings may not be an issue provided the contractor recognizes that the project is overbilled. Substantial overbillings should reflect a strong cash balance. If not, this will need to be explained to the surety. • Is the profit margin holding? – Sureties understand that some projects may experience profit fade. However, they get concerned when a contractor continually anticipates a high profit margin only to see it dwindle as the project moves on. There are several explanations for continuous profit fade including: • Poor job cost procedures and inability to accurately determine cost to complete; • Inability to accurately reevaluate problems on a job; or • A contractor that is withhold
