Construction Industry Outlook: A Q&A

To remain competitive in the construction and real estate industry, leaders must look for ways to keep projects on track and make sure contractors perform efficiently. Surety agents and bonding are a big part of this, offering a safety net that helps leaders manage risks and focus on operational efficiency. By partnering with a surety agency, leaders can have a reliable support system to help them navigate the challenges of the industry.

At Sikich, we work with surety agents and construction leaders to ensure compliance, manage risks and drive performance. We recently spoke with Damien Strohmier from DPS Insurance to learn about how they work with surety bonds to protect investments and keep things moving smoothly. In this Q&A, we cover the role of surety bonds and what makes them important for leaders in construction and real estate. Read below to find out what surety really means for the industry.

Q: What are the latest trends and developments in the construction sector? 

A: The construction business leaders I work with all still have terrific backlogs extending into 2025 and, despite the competitive nature of the industry, have maintained profitability.

However, we are starting to see delays in the private sector. Specifically, we’re seeing some new developments being put on hold because of the current interest rate environment or overall construction cost changing the funding need or returns for investors.

This is evidenced by a softening of the Architecture Billings Index (ABI) reported over the past several months. Certain areas of the country are reporting differently, but it appears that the Midwest is now complementing the downward trend in ABI that the West has suffered the past 19 months.  

I see this as a natural reaction to the pressures put on by interest rates; but if and when the Fed decides to lower the index, I think the ABI will rebound as investors will resume pursuing new projects. In the meantime, the municipal market should remain strong with opportunities.

Outside of an economic forecast, I’d argue that the supply chain has mostly recovered with lead times for materials getting back to normal. It is not perfect, by any means, as I regularly hear long lead times for items like switch panels, but the scheduling is much better for the trades. Labor will continue to be a struggle, but I see the long-term workforce development efforts by the prominent industry associations starting to payoff and hope this continues. 

Q: How can contractors get ready for applying for surety bonds?  

A: Contractors need to choose an agent that focuses on surety and can help to prepare and navigate carrier requests when establishing a bonding relationship. Your agent’s financial expertise and industry experience goes a long way in properly positioning your business for the market. An agent can also help put together a strategic plan to grow the size of the bond program that aligns with your business goals.

Specifically, the areas that your agent will want to highlight to carriers involve the company’s financial health (equity and working capital levels needed), credit history (personal included), and the experience of both key personnel and type of projects being pursued. For each of these areas, you want them in the best shape possible.

Q: What are some surety bond challenges that contractors face?    

A: The toughest pitfall to overcome is timeline. The reputation of a company and owner, strength of a balance sheet, superior credit history, and experience within a work type or of personnel are all built over time. Proactively planning for a company’s growth and how a bonding program may be a part of that growth will keep the company ahead of the game.

Companies should be strategically retaining equity at a rate that exceeds planned growth. This approach should address at least two of the three “Cs of surety:” character, capacity and capital.

Another challenge may simply be not receiving proper carrier support. While we just spoke to how acquire and maintain greater support, there are situations when a company needs to work with an agent to find the right carrier that will support your bond needs. Carriers have different appetites by sizes of projects and type of work being performed by the trade.

Q: What are some emerging developments in the surety sector?

A: The trends within surety are similar to most industries, as we all witness a heavy focus on the use of data analytics and artificial intelligence. When it comes to predictive modeling and risk assessments, these technologies are changing how sureties make decisions. While all this information is great, I imagine this is going to put more pressure on the contractor seeking a bond.  I say this because all this new data is going to influence decision-making across the industry; potentially changing support levels for given types of work or bonds. While they’ll still get done, it’ll likely come with requests for more collateral or at a higher rate.

Sureties are also adapting to address regulatory changes and provide new specialized or niche bonds for certain project types, like renewable energy. We’re seeing a stronger collaboration between the surety industry and other professions that support the industry to share knowledge and information, too. 

To learn more about the services we offer construction and real estate leaders, please contact our team.

About our Authors

Michael Barton, CPA, is a director of audit services with specialized expertise serving construction and real estate companies. In his role, he provides financial statement audit, review and compilation services in addition to consulting and compliance solutions.

Damien Strohmier is an experienced surety bond advisor at DSP Insurance Services, who counsels construction leaders with their complex insurance and risk management needs.

Brad Hermes, CPA, is the leader of the construction and real estate practice at Sikich. He leverages his expertise to build meaningful, strategic relationships with construction and real estate business owners, concentrating on increasing efficiency within financial reporting and analysis.