Fenestration hallucination: Cash is still king

“If you're not a risk taker, you should get the [heck] out of business.”
- Ray Kroc

Whether you’re a union or non-union contract glazing company--regardless of your size or the type of projects you do--the downturn has caused the loss of a lot of jobs, the loss of a lot of cash and a lot of business failures.

If you are an owner of a small-to-medium-sized contract glazing company in the U.S., chances are it’s been an especially rough financial ride for you since 2008.  Don’t feel like you’re alone.  And if you have been struggling financially and you’re having trouble getting bonds for your projects, don’t be surprised.

To get the big picture on where contract glaziers and other sub-trades currently stand within the U.S. construction industry, construction bonding surety companies can tell the best tale.  The members of the bonding surety industry are the ones who back general contractors and subcontractors with Payment & Performance bonds.  Here are a few quotes from the November 2011 edition of that industry’s main trade publication, Construction Executive magazine. Click here to read the "9th Annual Contractors' Guide to Surety Bonding" in its entirety.

“Loss frequency is expected to continue to increase in 2012 and 2013.  With more losses from smaller specialty trade contractors, sureties likely will see more severe losses from larger general building contractors and engineering contractors.  Two years of obtaining low-margin work with tough contract terms will begin to affect many contractors in 2012.”

“This economy has hit this (small contractors) market segment hardest, which has led to an increase in defaults and losses. …Underwriting has tightened up to ensure we are bonding qualified contractors."

“Surety underwriters will disengage pretty quickly from an account when company losses or debt leverage become issues”.

“Sureties also will require subcontractors to bond back to prime and general contractors more frequently.”

The demise of Trainor Glass (No. 4 on Glass Magazine's 2011 Top 50 Glaziers list) and ASI, Ltd. (No. 6 on that list) obviously doesn’t help how contract glaziers look to the surety industry these days.

FYI: The top 10 U.S. surety companies write 65 percent of the industry premiums (bonds), and the top five sureties--Travelers, Liberty, Zurich, CAN, and Chubb--write 54 percent of all the surety industry’s premiums.  The good news, reportedly, is that "many smaller sureties are now trying to move up to service mid-market customers."

Are you seeing this too?
General contractors always seem to come up with new contract clauses every day, and lately, I see even more unique provisions that push risk and responsibility down to the subcontractor as a result of the shrinking bonding industry.

Owners aren’t going to stop wanting to minimize risk.  Because so many general contractors and subcontractors have suffered financially over recent years, subcontracts issued post-bid by the generals now often require subs to furnish Performance & Payment bonds, even when the general hasn’t posted a P&P bond itself.

In other words, the GC (who may have even bigger financial troubles than you and may not have enough bonding capacity itself) has managed to get the owner to overlook the GC responsibility, and the GC then tries to force the subs post-bid to take the risk and eat up their bonding capacity!!

I’m told by friends around the country this isn’t new.  But check your contract language closely, even on small jobs.  I had a GC try to get me to bond a $9,000 remodel at our local Sam’s Club.  Just say no to general contractors wanting post-bid P&P bonds.  Ask to see the P&P bond they gave to the owner first.

“When the going gets weird, the weird turn pro.” - Hunter S. Thompson

 Rod Van Buskirk is the third-generation owner of Bacon & Van Buskirk Glass Co., with locations in Champaign and Springfield, Ill.  A past NGA Chairman, Rod looks at the industry from the middle of nowhere, steals ideas from anyone he can and pretends to know what he’s talking about.  Rod invites your comments as you are certainly smarter than he is.