Construction Surety Bonds Made Simple With Tyler Turnbull

Surety bonds can feel like paperwork until they decide whether you win the job, get paid, or survive a dispute. We sit down with Tyler Turnbull of Catalyst Surety Partners to make construction surety bonds plain English: what a bid bond really guarantees, when performance bonds and payment bonds are required, and why owners and banks lean on bonding to protect projects on both public and private work.

Tyler also pulls back the curtain on what underwriters actually look for when they set your bonding program. We talk about bonding capacity, financial underwriting, capability underwriting, and how a contractor’s growth plan gets translated into something a surety market can support. If you have ever wondered why surety is different from insurance, the indemnity conversation is the moment that clicks and it changes how you think about risk, cash flow, and “one bad job.”

We also get into the messy side: what happens when a bonded project goes sideways, what a bond claim can trigger, and the common remedies sureties may use. Then we go straight to one of the biggest blind spots for growing GCs: subcontractor risk management. We walk through the nightmare scenario where you pay your sub, the sub does not pay vendors, and a payment bond claim hits you later, plus practical ways to protect yourself with better prequalification, stronger subs, bonding back critical trades, joint checks, and a construction attorney who knows contract law and lien releases.

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Transcript

Welcome And Guest Introduction

SPEAKER_00 0:00

Welcome to another episode of Timeless Business and Building Strategies. Today we have Tyler Turnbull with us. Tyler is with Catalyst Surety Partners. Tyler, thanks so much for joining us today.

SPEAKER_01 0:13

Tony, really appreciate you having me on. Excited to be here.

SPEAKER_00 0:16

Thank you, sir. Hey, so give us a quick high-level overview of what Catalyst Surety Partners is and what's your role there?

SPEAKER_01 0:25

No, absolutely. Well, um, Catalyst Surety Partners, we're a boutique um independent insurance agency, but we focus on one product that's surety bonds. And more specifically, surety bonds for contractors. Um, Tony, I know in your business and many other guests that you've had on are probably very familiar with a bid bond or performance bond or payment bond. Um, we focus on helping contractors maximize their bonding capabilities. So, in my role is uh I'm one of the founders, a co-founder of Catalyst. Um, I can give you a brief background on kind of our story and how I fell into this little niche business of surety bonds, if you'd like me to start there.

Bid Bonds Explained Simply

SPEAKER_00 1:09

Let's start first for anyone that is newer to understanding construction principles or to contracting. Explain when do bid bonds come up? What are they? What are they used for?

SPEAKER_01 1:21

No, absolutely a great place to start. So um the bid bond is required um on public projects or statutorily required above a certain contract amount. Um, and the bid bond guarantees the contractor must qualify for it and provide it, and it guarantees to the owner, the entity that's bidding the project, that and the contractor submits that bid bond with their bid package. And should that contractor be selected as a low bidder or the awarded contractor if it's an RF RFP type process where it's not just simply low bid, that if they're awarded the project, they will enter into the contract and generally provide performance and payment bonds. And that's probably a great segment into what a segue rather into what performance and payment bonds are. Um, all right, so you low bidder, you get the contract, awesome, you sign it. Well, when you sign that contract, um, the public entity and the and bonds are also required on uh private work as well. Um, but they're statutorily required in the public space, so it's very, very commonplace there, right? Yeah. Um so all right, back to that example. Contractors awarded the contract, sign the contract, turn it in. They have to turn in performance of payment bonds. What the performance bond does, it does exactly what it sounds like, right? It guarantees that the contractor is going to perform everything they've guaranteed to do in the contract to the owner. They're gonna build it per spec, they're gonna meet that uh timelines, they're gonna do, they're gonna perform what they have promised to do. Uh payment bond. Payment bond guarantees that they are going to pay all their subcontractors, suppliers, laborers, that everybody that touches foot on that job site is gonna be fully paid. And um at the overarching level, bonds are required to protect the public, if that makes sense. So um a governmental entity or a private entity that requires bonds, they want to sign a contract for, say, you know, a million bucks, right? Well, they expect that contractor to perform the work for exactly that contract amount, not a dollar or more unless there's change orders, right? And they're gonna get what they paid for, and everybody that steps foot on the job has been has been paid, right? So it just guarantees that the entity requiring the bond is gonna get exactly what they contracted for for the price, and everybody that touches foot on the uh site is gonna be made hold and paid.

Performance And Payment Bond Basics

SPEAKER_00 4:05

Fantastic. Thank you so much for that. And those are these are utilized every day on and and they come into play on pub um private projects, excuse me, once you get to a higher dollar amount, and a lot of times it would be the bank that's gonna require that, or sometimes owners will want that just to make sure that their project is secure, you know, if it's a bigger contract and they're not positive about the contractor, maybe they just want some security in the agreement, and so that gives them that. Now, I appreciate all of that, and that's a great explanation. Explanation of that. Could you start now on your background? What got you into doing bonds and then creating this company?

SPEAKER_01 4:47

Yeah, well, um, much like most other people that have fallen or gotten to the surety industry, I didn't I didn't know what a surety bond was out of school, man. Went to um from Ohio originally, went to school at the Ohio State University.

SPEAKER_00 5:02

And you know that's where I went to school. I didn't I didn't know that. All right, good luck, guys.

SPEAKER_01 5:06

That's good. It's football, it's football season again officially since we got bounced so quickly in the uh in the NCAA tournament. But uh um so you know, senior year Ohio State, thinking about going to law school. Really didn't really um wanted to not be, you know, a poor college kid anymore or more schooling. So um I was a business major at Ohio State and um started applying for jobs, you know, normal time frame everybody everybody does, and applied for this job with travelers, um, one of the biggest sureties, uh, the biggest surety in the country, them and Liberty Mutual go back and forth uh every year. But uh literally thought when I was applying for this job, I was applying for like an investment bond underwriting job. Had no idea, right? Literally no idea. Um, and uh had a first interview, um, which I was actually late for because I the office park was so um so you know big and I was lost and all that. And uh still, you know, friends of the the managing team that that hired me, and they like to remind me that the only reason I actually got the job after the interview process was done is because the other person that made it the final round had two big diamond stud earrings that they didn't think contractors would appreciate. Um so um, but uh no, I mean, unless unless you have um you know a family member that's in construction or was in the surety business, it's a it's such a niche little industry that no one's really heard of. Right. Um so long story short, fell into it in 2006 when I graduated out of Ohio State and um worked for Travelers, one of the largest, uh, as I mentioned, uh one of the largest surety companies uh in the country, and um really enjoy the business right out of the gate. You know, you you get to you you get to really learn how a business operates, right? Because to to, and I can get into this later if you want, Tony, but you know, bond underwriters, that what they do is they're assessing the viability of a contractor and their capability to um to be able to complete the specific project or the backlog they want to take on in any given time. And you know, there's a there's a financial underwriting, uh a lot of it's financial underwriting, but a lot of it's capability underwriting too, right? Um, and a lot of more granular aspects of it's good risk management for any business, contractors, especially, to have a bank line of credit, right? So it really being a bond underwriter really teaches you a lot about just business, how to properly run a business, right? But um I I've always had a uh I always had a desire to to be an entrepreneur, and um I knew the surety space pretty well, right? So um naturally starting an agency would be a segue into my entrepreneurial journey, right? So um almost did it in Ohio um with another partner, and um guy's a great guy. Um I'm sure we would have done well, but I wasn't ready experience wise. Um, and Ohio's home. My wife and I wanted to try to get to a little warmer climate and try out the southeast before we started a family, right? So I joined Liberty Mutual down here in North Carolina in um 2011. And Liberty Mutual, a huge age, a huge underwriting company, very, very good company, great culture throughout. Um, and that's where I met my business partner, co-founder of Tablet, Scott Peelin. Um, and I was with Liberty for three years, but Scott and I, um, you know, when the seats we were in at Liberty Mutual, we were handling uh lead underwriters for some of the largest construction companies in the country. Um, in our top 25 contractors, which was fascinating and really, really cool to see, you know, underwriting bonds in the billions, right? And very uh high profile projects. But what we noticed out there was a gap. Insurety is such a different product than insurance. Um, Tony, I know you know this. Um you in speaking to the underwriting uh philosophy a little bit ago, it's it's financial driven. It's really digging into a business to understand, you know, their capabilities, their business plan, all that. But we um and insurance is more actuarially based, right? Yeah. Um, but we saw there's a huge gap in the attention and and service being provided to small to medium contractors in the Carolinas. There were a number of really, really good existing surety bond professionals, um, but they were pretty full at that time with with their medium to large size clients, right? So our hypothesis was we want to bring that the highest level of understanding of this little niche product down in the small medium uh space of the construction um segment and and help those folks that might be struggling with with uh with their bonding that are trying to get their bonds through their insurance professionals that are really good at their workers' comp and really good at the auto, but really just don't understand bonding, right? Yeah. So um fast forward 12 years, this July will represent 12 years of catalyst uh being in business. And we've helped over, I haven't looked at the actual total for for probably over a year, but we've helped over 750 different contractors across the southeast improve their bonding capabilities. Wow. Um, we've got a phenomenal team of uh 10 people right now, just got an accepted offer yesterday for our 11th. Um, we're really, really proud of what we've built in the last 12 years.

Tyler’s Path Into Surety

SPEAKER_00 10:38

Wow, that's that's an amazing story. So, to back up just a little bit, and uh you walked us through uh, and there's a bunch to take in on all of that. I want to learn first. So, you when you started at Travelers and then you switched over and moved down and then came to Liberty Mutual, which one of those two mammoth companies had better systems? Did they both have great systems? What did you learn as far as for you guys to open and operate your own business? Which one was more instrumental in that? Uh, and as far as systems and processes that got you and helped you for your side feel prepared to go and open your own business?

SPEAKER_01 11:20

That's a great question. And um, I would say we took, I took tidbits from both, right? They're fantastic companies, fantastic management teams, both had good, you know, great cultures. Um, and really what we took from there was a knowledge, right? They did such a good job of teaching us how to underwrite. And um, and and and through underwriting, again, you get to see every aspect of a contractor's operation when it comes to financial and risk management and project selection and planning, right? So just being a good underwriter also kind of just um showed you some of the things that you needed to have a good business, right? And and how the best companies, because not every company gets a bond, right? Not every company can qualify for a bond. Um, you've got to be good at what you do and a low risk of failure to the surety, or else they're gonna decline you, right? Um so took took a lot from both of those companies, but I'd say it's more so um more so the underwriting knowledge. That's really what set us apart um in the marketplace and allow Catlys to become what it is. It's that deep understanding of how underwriters assess risk. And now that we're in the seat of, you know, the the agent, the broker, um we excel because we meet the contractor where they are today, right? And maximize from one of our 30-plus surety underwriting markets that we work with and have a high degree of trust in. Um, our our first job is to maximize what we can do for you today, right? But the where the rubber really meets the road and where we really excel is if that contractor has a growth plan, right? They need more bonding and we need to wrap that growth plan in uh additional bonding support, right? We know exactly what steps they need to take to best present themselves to the surety to maximize that bonding, right? To to best position them to uh meet their business objectives.

SPEAKER_00 13:26

Fantastic. So that that segues me into the next piece. So the I I think that you know, with any business to be successful, you have to have a good plan. And then as you start that business, the more you're able to niche down and dial in and create some separation from anyone else in a business, that's how you become successful. So what you guys had identified, you and Scott, before you went on your own, was you know, there's a gap here in the smaller contractor and their bondability. With I'm working for these very large companies doing billion-dollar bonds, but what about you know, million, two million dollar projects? Those people probably were not high priority at this at this company, right? And then there that leaves a gap. And so that you guys filled that gap. And I would say, you know, not to just tout you, but even back when I began, which is uh in 2007, right? The first time I was really looking at some bondability was around when you were getting started and I was getting referrals because there was such a lack of availability of someone to help. So you go to the insurance company, they don't really know what the heck they're doing. They're trying to give me some form, they don't even know how to fill the form uh to even get help. And then I I was first introduced to you, and it was just like a warm, like I'm because I yeah, like anybody, I'm a contractor, and first time you're doing it, you don't even know what the heck you're doing. So, Tyler, what uh a great thing that you did for me when I started was you walked me through. Well, you've got to do this, and well, you know, what do you need? And here's what you need to do. And and you walk a general contractor through the steps, just like you said, of what do you need to do? And then, you know, what's your limit? How do you get a better limit? What how do you need to set yourself up? These are the steps that you need to take. And then we got out of the public work while it was growing in private. And then since I've gone back, Tyler, you've been a great advocate for me growing my bonding capabilities. And could you dig in a little bit more on what that looks like? Because I think that is where the rubber meets the road on your guys' success.

SPEAKER_01 15:42

Now, I I appreciate the the kind words, Tony. And you've been uh fun to work with. Um, our process is pretty simple, right? In terms of um we try to work with good people first and good contractors second. Does that make sense? Yes, sir. Um, and and we're we're never in a seat to tell, we're never we'll never tell our clients of how to run their business, right? That's not our place. We're here to provide counsel and advice and guidance relative to bonding and anything else that they might want insight um on from us because we do see with our seat, um, you know, our clients uh let me let me clarify that, you know, while we started the company, the focus on small and medium-sized contractors, today that represents startups to companies doing hundreds of millions of dollars a year. So we've got capabilities and to do a bond of literally any size in the marketplace with the uh our expertise and the relationships we have with markets. But it starts with good people, right, doing the right thing. And um and then it's just doing obviously we know our stuff really, really well, right? We know the underwriting, uh the bond underwriting process really well. So we pre-underwrite everything internally before we even go to the surety. So I might get you know your financials in, Tony, and um go back to when we first started working together, right? Like I might get it in and like, I'll come to you and ask the two or three questions that I know they're gonna have a question on when I see the financials and get out in front of it. So that allows us to best position your company when we go to market by proactively answering the financial questions they're gonna have by looking at your financial statements, right? But then it's also articulating the plan, right? We want to get to know our contractors and and again meet them where they are, but understand where they want to go. And um, that's really critical to us, not only to provide guidance to our clients in terms of how they how we can uh best support them with bonding to get there, but also to to articulate that properly to our underwriting partners. Um and I think, and I don't know if it necessarily sets us apart. We've always endeavored to do the simple things better, if that makes sense. Um and and what that means to us is um, well, really, you know, staying true to our core values. And the first one of those is integrity, right? A lot of folks out there will tell clients, I don't care if it's surety insurance or what business, what they want to hear. We're gonna tell you what you need to hear. We're gonna tell you the truth. We're not gonna uh beat around the bush and delay giving you news you don't want to hear. We just deal transparently, right? Um and I know I'm kind of rambling now, but it really it really comes down to expertise, doing the little things better, um and doing business with good people.

How Catalyst Helps Contractors Grow

SPEAKER_00 18:21

Yeah, yeah. That's that's awesome. And I and I I appreciate everything you're saying there. That that is great. What I'd like to do now is kind of I think we have a good understanding on a high level of bonding and surety. Now, let's dig in a little bit on business and how you guys have become successful and been in business this long and grown to what you just said to doing contractors that do hundreds of millions of dollars of construction projects per year, right? So walk us back to you and Scott making your decision uh and kind of walk us through your startup. What did that look like? It how slow did you grow? What were your struggles initially? And and kind of give us a quick overview of your start time and then we'll work to where you are now.

SPEAKER_01 19:08

Yeah. So uh started in July of 2014, and we you know created the brand, rented a a really um I oh I don't know. Was it was it both was it for was it the first time both of you had ever uh created a no first time uh entrepreneurs were both uh in big corporate America out of school, but so uh yeah, starting in uh July 2014 in a really small uh nanoscript office in the Cotswold part of Charlotte. We um bought our office furniture in our little two-room office for a sum total of$20 off Craigslist. My my business partner, Scott, was a big spender. I got mine for free uh from just picking it up. And Scott, you know, had to spend all this money at 20 bucks on our first office. And uh and you know, our waiting room, we didn't have a waiting room, we had two offices, one for each of us for the small and the air conditioning didn't work, right? Um, and our if we ever had a visitor, we'd we wouldn't let anybody in our office, we'd go meet him for coffee. If someone did come in, we had like those camping chairs for people to meet us in, right? But um, I I'll say this, I mean, just doing out of the gate, um, we again we took the same philosophy of chasing good people versus chasing revenue, right? If you do right by people and you're working with the right people, the money will take care of itself. And we had the patience at the beginning, which is hard, don't get me wrong, to tape that model. But that allowed us to get a great uh great deal of trust in the underwriting markets, uh, kind of the antithesis of some of the big brokers out there. Um, and not all. There's we've got a number of competitors who do business the same way as we that we do, but a number of brokers out there across the country, they they chase revenue, right? And they'll try to beat the underwriters into submission. And our philosophy was the opposite of that, right? But the the first six months, I mean, man, we didn't pay ourselves. I had a one-year-old at the time when we started. My wife stayed home from work. I funded my living and um my capital that I put into Catalyst to start for my 401k, man. I was truly betting on myself. Um, and we did$14,000 of revenue in the first six months. That doesn't feed a baby and that doesn't pay many bills, right? Um, but but but I'll tell you this like slowly over the next you know year, um, well, it probably took about 18 to 24 months to really be the place where we pay ourselves, not much, right? Just for basic necessities and stuff. Um, but Scott and I talk about it all the time. Um, I don't, and we're having fun today, and we're really proud of where we we are. We'll never have more fun in that that first 18 months because every bid bond that we had out there, you know, we um we there's no fee to work with us. We get commission off the premium. If you if a contractor gets uh a project and has to provide performance of payment bonds, we get a commission off of that premium they pay, right? So we we went to Home Depot and got. Basically the whiteboard material, but it was in the size of uh of plywood, sheets of plywood, right? And we had them cut it down in old deep, and we drilled them into our office wall. And like we had so little going on where we we uh would write like, all right, ABC construction bid on you know April 1st, potential commission,$1,000, whatever, right? And then they'd get it, we'd be high fiving, right? Like um, it was so much fun just to see a high as an entrepreneur. I know you get this. Yeah, to see a hypothesis paired with a tremendous amount of effort, paired with a tremendous amount of integrity and trying to do things the right way, to see it come to fruition, there's not many better feelings in the world beyond having a kid, getting married or whatnot than that. Like that's why we'll always refer to the our struggle years, you know, financially to the most fun we've ever had.

SPEAKER_00 22:51

Yep. Absolutely. Yeah, and I and I can on that sentiment, you know, I still, I mean, I get uh butterflies when I'm dropping off a proposal. I mean, it's like so exhilarating when you're going in to try and win a job or go trying to close a job. I just went yesterday to a project, tried to close it. I mean, I spent two hours writing up out of sales script on what I'm gonna, all the things I'm gonna go through to try and you know, sell myself, where it you know gets it away from a financial decision where it's a relationship-based decision, uh, to your point, uh, which is what makes uh companies the most successful when you when you have that integrity and you know your reputation is the most important thing in in any business, in my opinion.

SPEAKER_01 23:35

So then the next phase, we'll I'll kind of um mesh, you know, that that startup phase and viability and all that to where we are today. Um, you know, we build a team sense in today, you know, that Scott and I are obviously uh very important here and help set you know, vision, direction, uh high-level goals, all that good stuff, um, leadership, if you will. But Catless is what it is today. Um, and we're very proud of what we stand for in the marketplace, not only of our clients, but our underwriting market, uh, markets, underwriting partners. It's because we've just been incredibly fortunate with the standard of individuals that comprise our team. It's just, you know, good people that are really good at their craft, that work really, really hard, but could also could also or also um enjoy each other's company. Like our culture is really, really unique, and we protect that culture at all costs. We know we have something special there.

Startup Struggles And Company Culture

SPEAKER_00 24:34

Uh, I'd love to hear that. So, real quick before we go out, I where I know you we've got the bonding now at this point. You guys do it. Is it just throughout the whole southeast? Like you go out to Texas, and how far north do you go? So, if anybody listening is looking for a bond, like what all areas do you cover?

SPEAKER_01 24:52

Yeah, so we uh we have clients all throughout the southeast. Um, I was just in DC earlier this week. I've got a uh civil uh federal contractor up there. I've handled for 10 years, really, really uh phenomenal business they've built up there. My business partner is in Tennessee last week. So um, for years we were Carolina-centric. Um, and but that said we were referred in other clients, word spread um in into other parts of the country um about us, our approach, our capabilities. So we've always had clients in Florida, Texas, Tennessee, DC, Virginia, you name it, right? Um, but over the past couple years, we've also started prospecting a little bit in um outside the Carolinas. Um the technology's made the world a little bit smaller. Um, and our our three uh three other folks on our sales team, it's beyond me and Scott, um, they're happy to get on a plane, get in the car for a long car ride. Um so yeah, it's I I would say right now it's really eastern half the of the United States.

Partner Roles And Team Structure

SPEAKER_00 25:56

Awesome. That's great. Okay, so let's go through this. So now the success of you and Scott with any partnership, uh, I always look at it as, you know, each of you have to add a certain value and it hopefully is different values, right? So to for that to create synergy and alignment for success. So if you were to define what's the top value you bring or where you sit, what type of a seat you sit in versus what Scott sits in, could you give us that information?

SPEAKER_01 26:25

Yeah, I mean, we we divide and conquer. It's a true partnership in every sense of the word, and we and we complement each other very, very well. Um, anything strategic, we're coming together and and grinding on and figuring out collectively any big decision and even the more granular ideas, but day to day, you gotta divide and conquer once the uh business gets to a certain point, just from a time management perspective, right? If we're effectively gonna do um everything well and continue to position ourselves for growth, um, we have to have our own you know kind of areas of focus and then come together for anything big, right? Yeah. Um, so so my my day-to-day is um people sign culture, um, HR, all that fun stuff. Legal comes to me. Um, Scott runs our data and looks for trends in our data, runs our books. Um, so that's from a high level, um, and that's where we compliment each other well. We think about things differently, we approach things where I'll come in as maybe pie in the sky and too high level, and Scott will be grounded, you know, more more so in the granular details and tell me I'm an idiot. And um, but that said, given given um just our natural tendencies of how we approach something, right? But when we come together, we get to the right spot. And if we were the same person um in terms of that approach, it it wouldn't work as well as it it has.

SPEAKER_00 27:47

That's great. So yeah, so I don't know if uh we didn't get into this. Do you guys operate under uh EOS or any type of uh specific operating system? Uh, because based on what you're telling me, you sound like you're more the visionary. He's more of like an integrator type. If you've do you ever aspire to any of those type of things?

SPEAKER_01 28:05

I wouldn't I wouldn't say that. No, we we both we both uh are visionaries together, if you will. It's just more so anything big strategic that we're um that we're looking to do. It's a collective, collective conversation. It's more so um and then implementation too. If it's if it's data driven or tech driven, you know, he'll he'll be spearheading that. If it's people driven or culture driven, I'll be spearheading that. Um, so it's really truly unique in the sense of like um it is a true partnership. And well, I believe that.

SPEAKER_00 28:37

Yeah, so that that sounds, but I would say that that sounds like a visionary and an integrator. That's no no, we we don't.

SPEAKER_01 28:46

I I wouldn't call myself visionary by any sense of sense of the uh the imagination. And um no, it it it's it's worked really, really well.

SPEAKER_00 28:53

So does he is he does he like to do selling?

SPEAKER_01 28:56

Oh yeah, no, we both have our uh own uh book of clients and sales responsibilities as well. So that's why it's unique to to be to be um good at not only running a business like this, but to be good at um at what we do for our clients. There's a sales component, right? But also a technical know-how component as well. So we truly in every day knowing the underwriting, you know, maybe I'm better high level in terms of um management responsibilities and in the weeds, but I've got to also be good at the granular stuff, or else I couldn't underwrite your bonds well, Tony, right? And then same, same for him. Um, he's got to be a good underwriter and good at the sales side. So, truthfully, like we have to both be good at a lot of different things functions, yeah.

SPEAKER_00 29:42

So tell me so we've got a team of 10 going on 11. So, kind of what is your business structure? Could you kind of give us a high level of that?

SPEAKER_01 29:53

Yeah, um, so we've got you know a sales team and an operation service team, right? And it's a clear um, and we obviously try to we we do come together and effectively operate as a team overall, but the core aspects of the business is we've got to have um you know a team of agents um on the sales team that know the underwriting very, very well, right? In order to properly position their clients with underwriters to negotiate and then maintain the uh bonding programs for their clients, right? But then, all right, well, cool. Sales team is not done, the job's never done. But all right, we've got this new client and they're set up on this program, and we've done a great job on the um on the production side, on the sales side. Well, that's just half the battle. Now we've got to provide great service, right? So the service team handles your everything behind the scenes in terms of getting bonds approved, documenting files, issuing our physical product, which is a piece of paper, and they both have to operate at a very high level for it to work as well as it does. Because at the end of the day, our product is a piece of paper, but but we're a service business. We are a service business, and our product is our people, right? With a service business. And we endeavor, we have ever since we built a team, our goal is to be the best service provider each of our clients has, not just relative to bonds and insurance. We want to be the best service provider you have versus I don't your internet provider versus your tech people versus whatever. That means being consistently responsible, responsive, uh, consistently um transparent and just consistently going back to what we mentioned, we talked about earlier, consistently doing those little things better than other service providers. So and how it operates, you know, sales uh the sales team reported up to me and Scott. Um, and then we have two operations team leads on the service team, the operations team that um have oversight over the um the service side of our business. They're both 30 plus years of experience in the uh in the the surety business, have been with us for um seven and eight years, I think seven and nine years. I should know this. We just had anniversaries, um, but uh they are absolutely phenomenal and great leaders for the rest of our um service team.

What Happens When Bonds Go Bad

SPEAKER_00 32:16

Oh man, it's so funny. All right, so now I would like to know, and I I don't know how how much you can get into this uh at all, um, but if possible, I'd I'd love to hear. Did you give me any time where something went really sideways on anything that you've done and how how it happens and what happens when something goes sideways with a bond? And and kind of walk me through, you know, without naming any names or anything, just kind of an example so somebody could understand what happens when a payment and performance bond goes sideways.

SPEAKER_01 32:53

Yeah, I mean that that's uh good good question. There's so many different ways any construction project you know better than I do can go sideways, right? Um, but yeah, where a bonded project really goes sideways is when there's a claim, right? And um that could be a performance bond claim or a payment bond claim for a job um ongoing that's bonded, right? Um, performance bond claim and and our track record is uh knock on wood, pretty remarkable given how much premium that our certainties have written through our agency paired with their loss ratio. Our loss ratio is very, very low, and we're proud of that. That's tying back to trying to endeavoring to do business with the right people, right? Right, but it's construction things happen. Um in the most common, I guess, situations where we've seen losses that um it can be tied back. A couple have been on the private side and it's been owner-driven, difficult owner, difficult GC, um where our contractor, um, and again, I'm not an attorney, but um per what um we were told and what the claims folks were told, they were performing in line with um expectations and all that good stuff, but they uh they got crossways with an owner or GC and things got sideways and they got sideways quick, right?

SPEAKER_00 34:16

Um so more of like a legal dispute, and then so then uh you know, some some dispute, and then it turns into the owner calling a performance bond on them type of exactly, exactly.

SPEAKER_01 34:30

And then payment disputes, payment bond disputes, uh they they largely come the valid payment bond disputes, that's a function of um financial wherewithal, right? A contractor gets in a bad spot from a liquidity perspective and can't pay their bills. Um, so that's purely financial driven and the contractor's inability to pay their substance suppliers.

SPEAKER_00 34:49

So once once something like that is triggered and someone uh so an owner calls uh for you're for this circumstance we're talking about, they're they're in quasi-dispute, right? And so the owner's calling on the payment. What happens? What's what are the steps and does the project continue or do they stop? And does it become a does does the payment and performance bond go into a legal box where it's going into the dispute and arbitration and all of that? How does that work?

SPEAKER_01 35:20

Great question. All comes down to the bond forms and the contract. Um, the bond forms will lay out the remedies for the surety um in the event of a performance bond claim situation, right? So it's very important to understand your bond forms, especially if you're on a private project or if you're a subcontractor. Um sureties do a very good job generally of reviewing the bond forms because yes, they're providing on behalf of the contractor, but in theory, they're stepping in the shoes of the contractor if things go haywire, right? So sureties um generally catch anything very, very bad that might be in a bond form and ask for it to be changed or in the contract because the bond's actually attached to the contract, right? Um, so use your surety partners as a resource there, contractors that might be listening to this for review of contracts, bond forms, and all that good stuff. But the remedies under a performance bond um are again dictated by the language of the performance bond form. Generally, the surety has three options. If the contractor's terminated, defaulted, path of no return with uh the owner, right? Generally, the surety can step into the shoes of the contractor and um and find a replacement contractor, right? But the surety is going to take on the additional cost. They could, they could, if it's really bad. Oh, well, let me get to the other one first. They could, if the owner is amenable, and again, not an attorney, but they could also step into the shoes of the contractor and bring the same contractor back in potentially. Then the last option, the last option is, and that's a function of the contracting law and the relationship with the owner at that time, right? Right. Or they could just stroke a check for the full amount of the performance bond. Um, generally, that only happens if somebody misbid a project considerably, it takes them out of business, and the surety's cost to finish the project is going to be well in excess of the penal sum of that bond amount, right? So um, those are the three remedies uh generally. But if if a surety does pay out on your behalf, know that surety different than insurance. Sureties require indemnity agreements, right? Insurance, you get an offender bender and uh your insurer pays out on your behalf, right? They're making you whole and they're not expecting you to repay it, right? Your rates might go up a little bit the following year, but you don't have to indemnify. With surety, indemnity agreement in place for every contractor where the surety is expected, expecting to be made whole for any dollar they pay out on your behalf. Um, and um that requires corporate indemnification, personal indemnification most of the time. Um so there are re repercussions, big repercussions, if there is a valid claim, it's paid out by the surety. And if that's if that bond claim is not repaid, um your your ability, not only your company, but your individual ability as the owner of that business to get bonded in the future is next to impossible.

Subcontractor Risk And Bonding Back

SPEAKER_00 38:37

It's extremely good information to completely understand. So another another thing, so this is the performance side of it, and that's critical. Another thing that I've encountered quite frequently as a contractor is um when you have a bond and then you have subcontractors that don't have a bond, and you're guaranteed to pay. They, if they don't have a bond, they're not guaranteed to pay. They're vendors' suppliers. So they can sign uh you know a full lien release, and you as the contractor come in, you've paid everybody, you've got your lien release, everything looks great, closed out of job. Uh two months later, you got a vendor calling you and saying, Hey, uh, you know, we just want to let you know we're leaning this project because we never got paid. Uh, even so this, so could you explain then as a contractor? So I've got I've got this payment and performance bond. Um, and so I am guaranteeing to do all this, right? And then you do all the right things. So what I walk through, tell me what what do we, besides getting that bond, what should you do with these subs as you're getting into larger projects?

SPEAKER_01 39:55

I mean, I'm glad you brought that up. Um, you know, we we work with a lot of growing contractors, a lot. And that's the most fun for us. And don't get me wrong, if you're doing$50 million now and want to stay there forever, cool, we appreciate your business. But um, as an entrepreneur, like I love the growth phase and I love seeing contractors succeed and being a small part of that as they grow, right? But with that, we get to see a lot of the good and the bad and the ugly, um, not only as contractors grow, but just how they operate, right? And there's a huge a few really key areas um that I would argue the owner has to maintain at least a visibility in or a say in as a company scales. You know, you lose span of control as you scale, right? Naturally, you need more people, and uh, you need to rely on people to do four tasks, right? Um, but sub-risk management is one of the areas that the owner has to have a voice in, right? No matter how good your people are and how much you trust them, because improper subcontractor selection or risk management is one of the key aspects that can take your business down, right? Or make it hurt very badly. Now, with that situation where you know you're bonded and your sub's not bonded, um, that's common, man. We see the most common payment bond we see is exactly the scenario you just outlined. You pay your sub, they don't remit payment downstream, and months later you get this surprise payment bond claim from uh fourth-tier sub you've never heard of, right? Right. Um, you know, it it first, you know, first sub-risk management starts with sub subselection, right? Um, how robust is your pre-quall process? What does that entail? How familiar are you with this sub? Then it comes down to you know, your subcontract. You need to have, as you scale, be some of the best money you've ever spent, invest in a very good construction attorney, not your attorney up the street, but an attorney that specializes in contract law at a high level to meet with you, understand your business, and draft you a good subcontract. Okay, but a good subcontract is not in that situation, that's not enough. That's not enough, right? Right. Also having that payment protection. Um, you know, bonding back subs, we would recommend it. Um now, does it make sense to bond back every one of your subs? No. Critical past subs, large subs, new subs to you, yes, right? Or some other you know, joint check mechanism or whatnot. So, you know, even again, more of the story, sub-risk management. The owner always to do it best and insulate yourself from an Armageddon situation as you scale, the owner's gotta have visibility and to say, in sub-risk management, a great prequal process, a rock solid subcontract, but also proper risk transfer uh in terms of a financial mechanism via a bond, via joint check, or whatnot.

SPEAKER_00 43:06

And this is uh this is probably to me one, if any, you know, as contractors are listening to this, this is probably the most important thing of our whole conversation for your protection. So you get that bond, you know, so you're beholden to all this, right? And and you get that when you pay that sub and this uh and you don't have the transparency of the sub, you know, paying all those vendors, and this comes back to you. It is doesn't matter how good your subcontract master agreement is or this project agreement, you're liable. And so the only way to protect yourself in that situation is to for them to have a bond. That's really it. Otherwise, you know, you're playing Monday morning quarterback and you've got to pay that money. If the you can get the sub to somehow pay you back, great, but you know it does. Doing your due diligence up front is extremely important. You know, understanding the financial viability of this subcontractor is this the biggest job the subcontractor's ever done. Does he have the manpower to perform this project? Getting all that information is a lot easier on the front side than trying to figure out how to get your way out of a hundred thousand dollar invoice from a vendor on the backside.

SPEAKER_01 44:25

Yep. Absolutely. So again, back to uh key point of that invest in a good construction attorney as well, not only for that subcontract, but also understanding on a private job how many layers do we need lean releases, right? Like all that stuff. Try to have a standardized process that is rocked solid that insulates you as much as possible beyond getting a bond from those subs.

How To Reach Tyler And Closing

SPEAKER_00 44:49

Awesome. Well, Tyler, it's been a great conversation today. I feel like we've gotten a lot of information for people to dig into. I sincerely appreciate you coming on and chatting with us today. It's been a lot of fun uh getting to know more about your business and and your background into it. So thanks so much for chatting with us. Now, if people want to get in touch with you, what is the best way to reach you?

SPEAKER_01 45:12

Yeah, I would say yeah, via our website, um, catalystsurety.com. Um, and we've got you you can learn a lot more about catalyst, um, our origin story, our history, you know, what we do, our value at our value proposition to contractors, or um directly you can email me. Um email address is just firstname.lastname, Tyler.turnable at catalystsurety.com. And um, no, Tony, I I appreciate you you have me on. It's been a fun conversation. I could talk for hours. Sorry if I uh rambled, I'm known to do that, but I could talk for hours about um what we've seen in our seat and best practices for contractors as we see them as they scale. So I appreciate the uh the opportunity.

SPEAKER_00 45:55

Yeah, it's been it's been a lot of fun. Tyler also spends a lot of time on LinkedIn, so you can catch him on LinkedIn as well. And we'll put all the information in the show notes because people can reach out to you directly. Tyler, thank you so much for jumping on with us today. I sincerely appreciate you.

SPEAKER_01 46:09

Hey Tony, thanks again.

SPEAKER_00 46:10

Have a great day, sir.

SPEAKER_01 46:12

You too.