Posted on 06 Aug 08
(Originally published in U.S. Surety Industry News)
State and federal agencies – long cautious as the country’s private sector embraced customized software applications and high technology advances – now are treating many of these services and products as “proven” and are developing the sophisticated purchasing expertise needed to buy them. This has led to a small boom in demand for performance bonds among the providers of these services and products, . . . a development that has caught the U.S. surety industry unprepared says Geoff Hathaway, President of ProgramBusiness storefront owner Goldleaf Surety Services, LLC, a specialized national surety broker based in Minnesota.
Many insurance agents know that contracts with government agencies are the single largest source of revenues for many of their clients. However, while purchasing agents in state and federal governments remained wary of investments in new technologies and customized software, the benefits of large government contracts were slow in coming to software companies and technology firms.
In the last 5-8 years, this has been changing. State legislatures and members of Congress who control spending decisions have become more comfortable with technology generally and have come to recognize that many technologies now are considered “off the shelf” and not risky for tax dollars. At the same time, government agencies are developing the trust and sophistication to think through and better manage these purchases. This has opened all sorts of new opportunities for all sorts of software and technology companies in the U.S.
Hathaway and his staff at Goldleaf have watched the trend and are excited by it. “It is especially great to see these opportunities begin to trickle down to a great many small and medium sized companies,” says Hathaway. “For the most part, government purchases of software, IT and technology was dominated by very large companies for more than three decades. Meanwhile, much of the innovation in this sector has come from numerous small and medium size companies that have been excluded from the bidding process.” New and very significant cost-savings for taxpayers were available with these innovators, Hathaway says, but the government agencies just were not ready to buy.
Meanwhile, much to Hathaway’s delight, the U.S surety industry failed to monitor and learn from these changes as closely as Goldleaf Surety Services did. “The U.S. surety industry has been geared toward bonding only construction companies and related trades for over 100 years,” says Hathaway. “Most surety company underwriters will tell you they only understand ‘sticks and bricks’ construction projects and do not understand the growing software or technology sectors.” This has created a fast-growing niche for high-service, high-skill brokers like Goldleaf that have both the in-house underwriting expertise and the market capacity to answer to the needs of these firms.
Hathaway says that software and technology companies – and the retail agents and brokers that serve their insurance needs – should not be told that they are not bondable. “The underwriting considerations are quite different for these industries,” he admits, “and the surety markets are few.” For example, the broker handling the bond request needs to get a detailed understanding the project, verify the company’s performance history on similar projects and thoroughly review all the contract documents. “But these performance bonds can be done,” Hathaway says, “and the benefits to all the parties are huge.”
For more information, visit the Goldleaf storefront at www.programbusiness.com or call Geoff Hathaway at 888-294-6747.