Liga Asuransi – Dear readers, how are you? In line with the rapid development of the construction industry in Indonesia after the COVID-19 outbreak, it seems that we still need to add more information about things related to construction work.
We all agree that the main goal of a contractor working on a project is to make a profit. Right?
And the most effective way to make profits is by being cost-efficient for all project needs. Starting from material procurement, labor services, consultant fees, and other services.
Cost efficiency does not mean sacrificing the quality of materials and services but can be through good procurement methods by tender mechanisms, multi-suppliers, and using consulting services.
One of the costs that need to be of concern to contractors is the cost of surety bonds and insurance. Although the portion of it is small to the total project cost, the contribution to the project profits is quite significant.
Then how to make cost efficiency of Surety Bond and Insurance, whilst it is needed and required in the contract?
The issuance of Surety Bonds be it, Bid Bond, Performance Bond, and Payment Bond can be done usually with two institutions, first by using an insurance company, second by using a bank.
By using insurance, the cost is lower, and the process is much simpler. Whilst through the bank there are certain collateral requirements or guarantees in the form of assets or funds that must be held over to the bank during the contract period. And it can affect the cash flow solvency.
But now there is a third alternative, which is much more efficient, called the Contra Bank Guarantee. This is a product of cooperation between insurance companies and banks. The guaranteed certificate is issued by the bank, but the funds withheld by the bank are from the insurance company. Not contractor’s fund.
In terms of cash flow, a contra bank guarantee is very helpful because the contractor does not have to hold its funds in the bank fully. And also, the costs incurred by the contractor for issuing contra bank guarantees are only insurance premiums and fees for banks, which is more affordable to the contractor.
But unfortunately to get a contra bank guarantee is not that easy because it must merge the insurance company with the bank.
To do so, therefore, you need an assistance from insurance expert that is an insurance broker. Particularly the insurance broker company that is experienced in providing surety bonds.
For more information about reducing bonding costs, please continue to read item 5 below.
To give you a bigger picture about construction cost savings, as a senior insurance broker in Indonesia, we are going to write interesting information for you that we found on the internet about tips on 9 ways that contractors can make a profit.
For full information about the article is on the link at the bottom of this.
We hope that this article will be useful to you. If you are interested, please share it with your colleagues.
If you would like to consult directly with the author, please contact WA 081284019840.
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BE SELECTIVE WITH PROJECTS
It may seem counterintuitive to turn down projects when they present themselves, but the most successful and profitable construction contractors know when to say no. Not every project is a good fit for its experience in the industry or its capacity as a contractor. Bidding on everything wastes time and energy.
Contractors may also need a bid bond that ultimately leads to a performance bond requirement. These costs are normal parts of the business, but if unprepared, they can eat away at profits. Contractors should only bid on projects they know they can complete successfully based on their skill sets and time.
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HAVE THE RIGHT TEAM IN PLACE
If a contractor wants to earn more, it must have to put the right team in place. This means having trustworthy people in its corner as vendors, suppliers, subcontractors, or business consultants. A well-oiled team is more efficient over the long run and allows contractors to feel confident that there is no sunk cost when things run smoothly day by day.
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NETWORK TO BUILD RELATIONSHIPS
Many construction contractors see networking as a big investment of time without a significant return. However, research shows that networking with others in and outside of construction is crucial to being successful over time. As contractors build rapport with others, they are likely to receive opportunities for business that would not otherwise be there.
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CREATE WORD-OF-MOUTH REFERRALS
Like networking, creating a word-of-mouth system from past and current clients is one of the most cost-effective, profitable things contractors can do in their businesses. Referrals cost nothing to receive, and instead of having to spend time proving their worth to a cold prospect, contractors have a warm introduction that often leads to a new job.
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REDUCE BONDING COSTS
In addition to bid and performance bonds for public projects, licensed construction contractors may also be required to hold a construction bond or license bond to operate legally in the city or state where work is performed. Surety bonds for construction contractors come at a cost, but contractors can work to reduce the premium they pay in a few different ways.
Contractors must focus on personal credit first, ensuring they present as a reasonable risk to their surety agency. Have financial documents in order before applying and keep claims history clean. These small steps can go a long way in reducing contractors’ surety bond costs, putting more money in their pockets.
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CUT OUT WASTE
Making more money as a contractor requires taking a close look at how much material is wasted on each project or job. This takes place because contractors’ eyeball measurements in some cases, or miscalculate the amount of material they need for a specific job. Take the extra time to calculate and verify measurements and look over orders to prevent spending too much on unneeded materials.
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INVEST IN THE BUSINESS
It is difficult for a contractor to know where to find more profit if it doesn’t spend time investing in its business in the first place. That may mean acquiring updated tools, getting training or education on a certain skill, or employing others to take on some business tasks. It is true that contractors have to spend money to make it, so they should consider where they could use help and focus energy—and dollars—there.
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KEEP UP WITH MAINTENANCE
Contractors use a variety of tools in their businesses each day; over time, those tools require maintenance and upkeep. Be sure to care for tools and equipment regularly to prevent needing to replace them as often. This will save a significant amount of cash over the course of a contractor’s career in construction.
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DON’T CUT CORNERS
Finally, saving money on construction does not mean cutting corners. Trying to save a few dollars by purchasing cheaper equipment, working with sub-par suppliers or vendors on the cheap, or using less expensive materials almost always results in the wrong outcome. Contractors will end up spending far more in lost client relationships, increased surety bond costs for claims and a bad reputation when they choose to cut corners to save money.
How to get the best Bonding in Indonesia?
Frankly speaking, getting the best bonds guarantee that suits the contract and an efficient cost is not that easy. It requires an understanding of the conditions of the contract, relationships, good communication with the insurance issuer or bank.
One of the challenges of issuing surety bonds is the speed, the accuracy of documents, and legal compliance.
That’s why it requires the help of surety experts who have extensive relationships among insurance and banks.
The right expert is an Insurance Broker who has extensive experience in the field of financial risk. An insurance broker will help you to arrange the issuance of payment guarantees with some insurance company or bank accurately and faster.
The insurance broker is an insurance expert on your side as the insured while the insurance agent is on the side of the insurance company, he/she represents.
One of the insurance brokers companies in Indonesia that has extensive experience and successfully issued thousands of surety bonds is L&G Insurance Broker.
For any Bonds and your entire project insurance needs, please contact L&G right now!
Source:
https://www.constructionexec.com/article/10-tips-to-help-contractors-make-more-money
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E-mail: customer.support@lngrisk.co.id
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