As the value of construction projects has increased, so have risks for project owners and contractors. It’s not uncommon today to find commercial building and infrastructure projects topping $2 billion. Layer in the uncertainty of economic conditions, supply chain stresses, labour challenges, evolving project delivery methods and the risk picture becomes even more complex. For these and other reasons, surety has remained an important and trusted source of protection.

Following the global pandemic, the construction industry’s prospects in the near term are mixed. With growth opportunities on one hand and lingering operational challenges on the other, risk management has taken on even more importance.

The total value of construction starts in 2024 is forecast to exceed $1.20 trillion, a 7% increase from 2023. The largest increases in types of starts in 2024 include: highways and bridges, up 23%; hotels and motels, up 17%; manufacturing, 16%; multifamily housing, 14%; residential, 11%; and environmental public works, up 10%.

Despite the growth forecast, concerns abound for construction contractors. Most contractors have major concerns about the business prospects. The top concerns cited included:

Rising interest rates/financing costs                              64%

Insufficient supply of workers or subcontractors     63%

Economic slowdown/recession                                        62%

Direct labour costs (pay, benefits, taxes)                     58%

Worker quality                                                                       56%

Materials costs                                                                       54%

In addition, contractors continue to be concerned about workforce shortages and their impacts on construction prices and schedules. They continue to see projects being delayed – sometimes indefinitely – because of rising costs, slower schedules, and shrinking demand for the finished products.

Surety bonds play a valuable role in both public and private construction projects. Data collected shows that bonded projects have multiple advantages over those that do not utilize sureties. These advantages include:

Lower rate or likelihood of default. The analysis found unbonded construction projects may be up to 10 times as likely to default as those protected by surety bonds;

Lower cost of completion upon default. If a contractor does default, unbonded projects may cost 85% more to complete than bonded ones. In addition, sureties are typically able to provide the expertise and resources needed to transition to another contractor to complete the project;

Greater timeliness of completion. Public and private projects are 5 times more likely to finish on time than unbonded projects;

Greater project oversight. Bonded projects tend to have more involvement by construction managers and oversight than unbonded ones, which can help reduce the risk of default and control expenses.

The best relationships in surety are those built for the long term in which the interests of surety and customer are better aligned. For more information about surety solutions and resources visit our website.