Contractors and surety companies: How 2021 shaped up and what the outlook is for 2022

Brady Thorn

What is the surety market looking like in the state of Utah? Well, it’s matching the construction industry in the Beehive State and is healthy.

A healthy construction economy in the state means “soft” market conditions for the surety markets competing in Utah. It is competitive. Our western state has been discovered and surety companies are each trying to get market share. They have come to see what many local Utahns have known for years: that Utah is a great state to do business in as a contractor.

So, what’s causing the soft market?

This is primarily driven by profits being higher due to an increase in premium and losses being low. We have more jobs being bonded in both the private and public workspace, and those jobs are creating more bonded premiums. Even with the increase in jobs, losses remain very low which makes Utah a leader in the country in terms of loss ratios. This reiterates the point above that Utah is a great place to be in the construction industry. Given the soft market conditions, there is also plenty of capacity, no matter the size of contractor.

In addition to surety companies flocking to the Beehive State, the same is true for contractors. Utah has seen large, out-of-state contractors entering our market. This includes both general contractors and subcontractors.

Despite this healthy construction environment, there are still challenges. Even with all these companies entering the Beehive State, contractors, like other industries, are feeling the labor shortage. One of the common denominator questions — and frankly, concerns — for surety companies looking to offer surety support and evaluating a bonding program is, “Does the contractor have the bandwidth and workforce to keep up with demand?”

The labor market was already tight and given the labor shortage, contractors now have far more work than they can handle. This is a complete 180-degree turnaround from the Great Recession, when contractors couldn’t find a job but had the labor force to perform the work. Many contractors say they have more capacity for jobs, if they could find the qualified help needed, thus making the labor market competitive.

Another real concern is post COVID-19-related challenges. Every industry has been impacted by COVID, and construction is no different.

Supply chain issues and material shortages have created unprecedented lead times. Contractors need to be very cautious and thorough in their contract reviews. Sub-contractors should be having open discussions with general contractors and, in turn, general contractors should be having conversations with the owners about realistic timeframes, the current environment and any potential supply chain problems.

Each trade and construction type, from tilt-up concrete to wood frame on podium, has their own set of obstacles and challenges. With continuously expanding boundaries, contractors must communicate like they never have before. It’s important for workers, owners and general contractors to increase frequency of communication, be specific and clear, and maintain openness throughout the process

Most contractors had a solid 2021. Workloads were abundant, backlogs were larger than ever before in many cases, and government loans (PPP loans) added to the bottom-line profits. While public spending may be down a bit in Utah, the private sector is robust. There has been plenty of sideline money hitting the streets, and large, private projects are well underway in both Northern and Southern Utah.

So, what’s 2022 shaping up to look like?

The surety market continues to monitor the construction environment and it isn’t seeing any signs of slowing. They continue to see a strong flow of future projects coming in and great jobs to partner with contractors on.

To sum it up, Utah’s construction and surety market is thriving. The surety market is healthy and excess capacity is ready to support contractors in their surety needs.

Contractors, likewise, have rebuilt their balance sheets since the Great Recession and are positioned well to get bonds approved, facilitating the extended demand seen in both Northern and Southern Utah as our state continues to be discovered.

Brady Thorn is a senior vice president at Beehive Insurance Agency. He focuses on providing insurance and surety solutions to construction firms in and around Utah.