FMI Corp.

Only 5% of Surety Providers are Confident Contractors Can Survive the Coming Year

Surety providers have a downbeat outlook regarding the health and general prospects for the construction market, according to FMI's second annual Survey of Surety Providers. Results indicate 62 percent believe the U.S. nonresidential construction market will not experience growth until 2013. Nineteen percent of respondents believe the recovery will not occur until 2014.

Conducted by FMI's Investment Banking Group, the survey examines current market conditions, construction-firm risk management and issues surrounding ownership transfer for construction firms. Respondents represent a diverse cross-section of the construction industry including multi-market and national firms.

The 2011 results stand in marked contrast to FMI's first surety survey last year, in which the majority of respondents expected the downturn to end by late 2010 or early 2011. 

Only five percent of respondents to the 2011 survey expressed confidence that their clients were "well-positioned," with good exposure to stable or growing markets. Concerns about clients revolved around two main items: failure to reduce overhead costs and straying from core competencies. The latter is not unexpected, given the scarcity of construction work available and efforts to obtain work opportunities.

Regarding future surety-market conditions, 57 percent of the respondents expect their clients to have more difficulty in obtaining bonding one year from now; with 67 percent believing clients will have more difficulty obtaining a bond two years from now.

"Surety providers look at three key factors when considering bonding applications: the expertise of the management team, the strength of the balance sheet and project history," says Curt Young, vice president of FMI's Investment Banking Group. "If a company is struggling financially, it is likely they have engaged in business practices that will have a detrimental impact on their long-term success."

To download a copy of the full report, click here.

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