Many underwriters are cautious, even a bit fearful of the level of losses we may see in 1996 and 1997. I'm hopeful that we've learned the lesson of the '80s and that things will stay within bounds this time around. As a very positive trend, Huber sees potential new business for the surety industry in bonding on private projects, something that is extremely important, he says, as public funding continues to tighten, leading to an inevitable contraction in government business. We're seeing better understanding on the part of owners that, even when they deal with very large contracting firms, they still face the risk of failure. The oldest and biggest can, and sometimes do, fail.
Construction is a very risky business.
Surety bonds have traditionally been mandated in federal construction projects, both performance bonds and payment bonds. Performance bonds protect the government, and payment bonds guarantee payment of labor and material claims. Most state laws also mandate such bonds in state and local government construction projects. However, in private projects, there are no such mandates. I don't have hard figures, but private market placements are rising.