The Value of a Surety’s Due-Diligence
A non-bonded construction enterprise is 10 times more likely to become insolvent than bonded companies. This serves to illustrate the effectiveness of the surety risk selection process in ensuring that only qualified firms are permitted to undertake public work and the consequent economic benefits that result from this certainty around the construction delivery process.
Protection of GDP
Even in the current stable construction environment with microscopic interest rates and insolvencies at a 35-year low, surety bonds protect $3.5 million of GDP for every $1 million of premium paid on public infrastructure. In more volatile times, this impact is magnified. In the early 1990s when the rate of construction insolvencies spiked to 6 times their current levels, surety bonds protected approximately $25 million for every $1 million in premium paid.
Protection of Jobs/Wages
Under current economic conditions surety bonds will protect approximately 25 full time jobs or $1.5 million in wages for every $1 million in premium paid. In the tumultuous early 90s, $1 million in surety premium on public projects protected about 200 full time jobs or $12 million in wages.
Fiscally Responsible: Revenue Recovery on Premiums Paid
The CANCEA study has determined that some or all of the premium paid by the government for bonds on public work can be recovered through the tax revenue generated from the timeliness and certainty of the completion of the bonded asset. The analysis demonstrates that even under status quo economic conditions, governments will recover $0.40 in tax revenue for every dollar paid out in premium. In a high-risk economic environment such as seen in the early 90s, governments show a net gain, recovering $3.00 in tax revenue for every premium dollar spent.
The study demonstrates that the size and scope of the economic benefits generated are largely dependent upon the extent to which bonds are used to protect construction risk on public infrastructure. The optimum benefits are realized when 100% of public work is protected by performance and payment bonds.