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Procurement and Contracting Policy Committee Contractor Bonding Assistance Program Report – December 5, 2016

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IntroductionThe Contractor Bonding Assistance Program was designed to increase participation ofsmall local contractors on County contracts. The Program:

Provides technical assistance to small contractors to best position them to obtain bonding

Assists small firms in obtaining their first bond or expanding their bonding capacity so that they can bid on County contracts

Expands the County’s bidding pool while minimizing risk

Creates more competition for construction contracts and lowers contracting costs

This report covers the period beginning May, 2009 (Program inception) and endingSeptember 30, 2016. CBAP continues to add new participants to the Program andserves as a vital technical assistance resource for all participating contractors—fromnewly established to highly experienced.

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CBAP Services and EligibilitySERVICES

The Contractor Bonding Assistance Program (CBAP) is designed to help small local contractors obtain bid, payment and performance bonds. This is accomplished through one-on-one consultation with the contractor and technical assistance including contractor-focused group workshops and seminars. Guarantees of up to 40% of the contract amount or $750,000, whichever is less, are available to qualified contractors.

CAO Risk Management:

Barbara Lubben, Director of Risk Management Karen Caoile, Senior Risk and Insurance Analyst

Merriwether & Williams Insurance Services (MWIS):

Carol Henry, Program Manager Judy Singharath, Program/Marketing Specialist Bernida Reagan, Director of Community and Client Relations

CBAP also enjoys strong support from Ingrid Merriwether, CEO and President of Merriwether & Williams and Jennifer Elmore, MWIS Program Manager for the City and County of San Francisco Surety Bond and Finance Assistance Program.

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Program Design

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One-on-one consultation Bonding Banking connections Program Partners Marketing

Education Business Development Plans Introductions/Matchmaking Legal

Referrals to Program Partners (CPAs, Sureties and Brokers) Workshops and Seminars Collateral

Funds Administration Project monitoring Close-out

Outreach

Program Services

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Continued rigid underwriting by Sureties Lack of access to credit Large County projects (ATR and East County Hall

of Justice) are winding down—participating contractors are well poised for maintenance, operations and smaller capital construction projects

CBAP contractors continue to gain opportunities on construction activity on non-County sponsored projects within and outside of Alameda County

Market Conditions that Impact Contractor Bonding

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Dimensions of SuccessContractor Participation

From May, 2009 to September, 2016

CBAP contractors have been awarded work on 28 County contracts and three (3) change orders to date, totaling $25,327,758 including Highland Hospital ATR, East County Hall of Justice and County Job Order Contracts.

$122,758,956 million in non-County sponsored contracts were awarded to bondable CBAP participants, of which $72,907,485 million was within Alameda County.

CBAP has established bondability for 41 contractors. One Hundred Sixty Seven (167) contractors have received technical

assistance consultations, which are designed to create and implement a comprehensive business development plan. Technical assistance generally involves numerous one-on-one meetings for each active participating contractor.

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Participants by Ethnicity May, 2009 through September, 2016

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Since Program inception CBAP Staff has participated in three-hundred and eighteen (318) outreach events, including:

Seminars/workshop such as: ACPWA Building Opportunities for Business (B.O.B) Contractors Construction

Academy (with EBMUD) Bonding 101 Bidding & Estimating Business Credit 101

Networking opportunities such as: Prime Matchmaking Events (Public Works Agency and GSA) CBAP/NAMC Peralta Oaks Networking Conference Contracts Procurement Opportunity Workshop Trade Fair Contractors and Suppliers Expo

Pre-Bids, Bid Conferences and Bid Walks (Public Works Agency and GSA) CBAP presentations at Bay Area Contract Compliance Officers Association and other

regional agency, industry and chamber events

Outreach from May 2009 through September 2016

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“The Contractor Bonding Assistance Program worked with Accurate Firestop, Inc. throughout the entire bonding process on the Highland Hospital ACT project with Performance Contracting, Inc., and was very instrumental in helping us increase our bonding capacity from $250,000 to $485,000.”

- Javier Lucatero, President of Accurate Firestop, Inc.

CBAP Success Stories

ACCURATE FIRESTOP

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“I cannot thank you enough for your trust and assistance in getting me where I am today. The outcome of my situation is due to your efforts and the Contractor Bonding Assistance Program…I was finally approved for a single limit and bonding aggregate of $200,000 and was awarded a contract through Clark Construction [for the Highland Hospital Acute Care Tower Replacement project].”

- Doug Blacksher, Owner of AMG Construction

CBAP Success Stories

AMG CONSTRUCTION

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“Bonding has helped contribute to the rapid growth of our company. Since being introduced to the County’s Contractor Bonding Assistance Program, the Program has allowed us to successfully bid on public works contracts, and help other small contractors grow and succeed.”

- Len Turner, CFO of Turner Group Construction

CBAP Success StoriesTURNER GROUP CONSTRUCTION

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“The Alameda County Bonding Assistance Program truly works! Masterpiece Painting has seen difficult times in the last few years and by helping me prepare the necessary documentation and presenting me to the right broker, I am now a proud contractor pre-approved for a $500,000 bond.”

- Terrance Johnson, Owner of Masterpiece Painting

CBAP Success StoriesMASTERPIECE PAINTING

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Links To Current Contracting Opportunities

GSA - Current Contracting Opportunities – Constructionhttp://www.acgov.org/gsa_app/gsa/purchasing/bid_content/contractopportunities.jsp#const

GSA - Upcoming Contracting Opportunitieshttp://www.acgov.org/gsa_app/gsa/purchasing/bid_content/futurecontractopportunities.jsp#const

Alameda County Public Works - Current List of Advertised Projectshttp://www.acgov.org/pwa/business/projects.htm

Community Development Agency (CDA)http://www.acgov.org/cda/nps/bids.htm

Clark Construction – General Contractor for Highland Hospital ATRhttp://www.clarkhh.com/procurement

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Future Outlook Continue assessment of CBAP and Program focus Continue to help build the diversity and capacity of the small local contracting

community to better position them to bid and contract on County projects and strengthen the overall local economy Continue to work with prime contractors working on County projects (e.g.

Clark Construction and Hensel Phelps) or interested in bidding on future County contracts to identify contracts that match bonding capacity of small local contractors

Ensure that the Program continues to be integrated into the County’s bid processes and opportunities (e.g. Housing Bond construction) to expose more subcontractors to contracting and subcontracting opportunities

Continue to collaborate with County GSA-OAP and Public Works on outreach and networking events that increase small local contractor access to County projects by improving communications between small local contractors, the County and prime contractors

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TO: Alameda County Board of Supervisors’ Procurement and Contracting Policy Committee FROM: CAO Risk Management Unit and Merriwether & Williams Insurance Services RE: Report on the Alameda County Contractor Bonding Assistance Program (CBAP) DATE: December 5, 2016

The County Administrator’s Office Risk Management Unit (RMU) and Merriwether & Williams Insurance Services (MWIS) are pleased to provide this report to the Procurement and Contracting Policy Committee (PCPC) regarding the Alameda County Contractor Bonding Assistance Program (CBAP). This report provides background information as well as detailed activity information since the inception of the Program. 1

Program Services

CBAP is designed to increase participation of small local contractors on County contracts by reducing barriers and assisting eligible contractors to obtain bid, performance, and payment surety bonds for work on Alameda County projects. Services include:

1. Providing technical assistance to small contractors to best position them in obtaining bonds and growing their businesses

2. Assisting small firms in obtaining their first bond or expanding their bonding capacity so that they can bid on County contracts

Guarantees of up to 40% of the bond amount or $750,000 (whichever is less) are available for qualified contractors. Each contractor receives one-on-one consultation and assistance to identify their barriers to bonding. The program connects them to the resources they need to avail themselves of program services to obtain bonds needed to bid on County contracts. CBAP also provides contractor-focused group workshops and seminars, and regularly communicates with CBAP participants to inform them of upcoming bid opportunities, resources for business growth and news and other information to help them grow their businesses.

CBAP Team The Contractor Bonding Assistance Program team includes County staff and MWIS. County Administrator’s Office Risk Management Unit:

• Karen Caoile, Senior Risk and Insurance Analyst • Barbara Lubben, Director of Risk Management

1 The Program was approved by the Board of Supervisors in 2008 and became fully implemented, with the establishment of the collateral pool in May, 2009.

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Merriwether & Williams Insurance Services:

• Carol Henry, Program Manager • Judy Singharath, Program/Marketing • Bernida Reagan, Director of Community and Client Relations

The success of the Program is based on a collaborative team effort among large contractors, and county departments including Risk Management (RMU), General Services Agency (GSA), Public Works (PWA), and Auditor-Controller’s Office, with the support from the County Board of Supervisors. RMU provides overall vision, management and oversight of the Program. GSA Office of Acquisition Policy effectively promotes the program through regular communication with the CBAP Team. RMU and MWIS work closely with the Auditor-Controller’s Office Disbursements Division to ensure that payments to contractors receiving bond guarantees are sent to the Third Party Funds Administrators on a timely basis. Public Works Agency includes CBAP on its outreach event agendas. RMU also collaborates with program managers in Public Works and GSA to ensure their awareness of the opportunities and requirements of the bonding program. CBAP also enjoys strong support from Ingrid Merriwether, CEO and President of Merriwether & Williams, and the entire Northern California MWIS Surety Bond team, led by Jennifer Elmore, Program Manager for the City and County of San Francisco Surety Bond and Finance Assistance Program. Program Design

CBAP is based on the recognition that bonding is at the hub of business factors that make it difficult for small contractors to obtain bonding. The Program provides a comprehensive set of resources to address contractor challenges, obtain bonding, and maximize their overall contracting potential. Participation in the Program begins with a thorough one-on-one assessment of each contractor’s credit, capacity and character (the 3 Cs of bonding) to identify challenges that prevent the contractor from obtaining bonding. The Program then develops a technical assistance plan for the contractor including individualized counseling and support, education, and referrals to Program Partners (CPAs, brokers and surety companies) and other resources that help the contractors address challenges that prevent them from obtaining or increasing their bonding. These technical assistance services are complemented by the County’s guarantee pool that makes it more likely for a surety to approve bonding or increase bonding

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limits; the availability of the County’s collateral guarantee provides additional comfort to the surety company should a bid or a contract be awarded. To address the contractors’ identified challenges, CBAP provides the following services: Program Marketing and Outreach Contractor Consultation and Technical Assistance Program Partner and Resource Referrals (such as Program Partner Brokers, Sureties and CPAs) Workshops and Seminars Collateral Support Underwriting Third Party Funds Administration Contract Monitoring and Collateral Risk Management Matchmaking Opportunities

The CBAP team attends and participates in many outreach and educational events throughout the region to stay abreast of opportunities that may be appropriate for CBAP participating contractors, such as those convened by EBMUD, PG&E, San Francisco Public Utilities Commission. CBAP supports participating contractor’s growth and development. In addition to growing their businesses, contractors are able to hire local workers, help other small businesses, and support the work of larger contractors. These successes benefit the County in multiple ways: through wages and taxes paid, goods and services purchased, and overall economic prosperity. The contractor’s ability to be successful leads to increased bondability.

Market Conditions that Impact Contractor Bonding While the construction industry is currently very robust, conditions continue to exist that impact a small contractor’s ability to obtain bonding, including:

• Continued rigid underwriting by sureties • Lack of access to credit • Winding down of larger projects sponsored by Alameda County (Highland Hospital ATR and East

County Hall of Justice) Despite these challenges, participating contractors are continuing to sustain themselves with smaller County projects as well as projects within and outside of Alameda County. The Program understands the market and helps the contractors learn about and take advantage of existing opportunities. Program Outcomes/Dimensions of Success: The Contractor Bonding Assistance Program was designed to increase participation of small local contractors on County contracts. CBAP measures success in a number of ways:

• Contracts with Alameda County • Contracts awarded within the County (but not directly with the County) • Other contracts awarded • Increase in Bondability • Other indicators of contractor growth

These dimensions of success help identify where and how the contractors are growing, and what the Program can do to magnify their success within the County and throughout the region.

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To date, contractors participating in the program have achieved the following outcomes: Contracts Awarded to CBAP Participants from Inception to September, 2016

County Sponsored Projects

Throughout Alameda County

Work Outside of Alameda County

Grand Total of all projects awarded to CBAP participants since May 2009

$25,327,758 $72,907,485 $49,851,471 $ 148,086,714

The implementation of the bond guarantee component of the program has occurred simultaneously with a reduction in stand-alone County contracting opportunities for smaller contractors. As a result, much of the Program’s participating contractors have been as subcontractors on the two major capital improvement projects —Highland Hospital ATR and East County Hall of Justice. Participating contractors have also completed a range of other County projects as well as projects with a diverse set of prime contractors and agencies both within and outside of the County. Since program inception a total of nine county bond guarantees have been issued in the amount of $2.3 million for construction projects totaling $7.1 million. This relatively low demand for the bond guarantee component is a result of the effectiveness of the technical assistance component of the program. Technical assistance has enabled small contractors – often with no prior bonding experience - to qualify for bonds without the county’s assistance and in some cases increase their bonding capacity. During the eight years of its existence, the Program has had one-on-one consultations with 167 contractors. During that time, some contractors have made initial inquiries, received information and not returned. Others have taken that information from the initial consultation and returned (months or years later) at the point when they needed a bond or could gather the information required to complete their assessments. Many have come with no bonding ability. Others have arrived with lost bonding credit due to market or business conditions. Through the Program these contractors have attained bondability, and grew bonding capacity over time. As there is change and instability in the market that affect businesses, the availability of the Program has enabled all contractors—at whatever level— to have access to the County’s program resources. “Bondability” is established through the Program staff and its Program Partners (brokers, sureties, and CPAs) gathering and documenting information that results in approved bonding lines. Contractors can then use this “bondability” to obtain bid, payment and performance bonds, or to share with the County, other agencies or prime contractors regarding their bonding capacity when a bond is not required. Obtaining a “bondability” is similar to a prequalification/assessment of the contractor’s capacity and is sometimes sufficient as an alternative to an actual bond.

While many contractors understand the need to establish bonding, other priorities may preclude them from gathering the information or taking the steps necessary to complete the process, or they find it too difficult to do. The factors that prompt them to pursue assistance are dynamic in nature, fluctuate over time, and affect the number of contractors who are actively working to gather the required information. Having the Program as a resource provides a level of support for the contractors when they are ready to utilize it.

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Contractor Successes The increase in awards to the local contractors has strengthened their businesses, which enhanced the local economy on multiple levels. One of CBAP’s contractors was awarded a job order contract (JOC) for $1.2 million. Since the inception of the JOC, the value has increased to $4 million. As a result of the JOC, the local business was able to hire two permanent employees who are both residents of Alameda County and were unemployed prior to being hired. Another CBAP contractor who came to the program with no bondability has established bondability at $200,000 with the help of CBAP, and was awarded a $100,000 contract on the ATR. This contract has grown to over $7 million with change orders. We have seen the Program open doors to additional non-County contracting opportunities for small Alameda County contractors. The technical assistance provided under CBAP has enabled 33 local contractors to successfully bid on or be awarded contracts. Although some of these contracts were not sponsored by the County and no bond guarantees were provided, the County benefits from the awarded non-County contracts to local contractors in various ways - through the overall strengthening of the local economy, the expansion of the bidding pool, the additional revenue flowing to small local businesses and the increase in tax revenue to the County. Similarly, additional economic development has resulted from these contractors obtaining work outside of the County. The small businesses benefit by increasing and diversifying their revenue stream and building capacity that may lead to a future successful bid or award on a County project. Other dimensions of success include the pre-approval of small local contractors for bonding which is beneficial to future contracting opportunities and assistance with pre-qualification with general contractors for County-specific contracts, such as the last phase of the Highland Hospital Project, East County Hall of Justice and JOC contracts. The improvements in the business practices of small local contractors due to the technical assistance provided by the Program make them more likely to be approved for bonds in the future. Finally, participating CBAP contractors have been able to create local jobs including jobs for many women and minorities throughout the region. Examples of Awards to Program Participants Corbin Building Inc. – Highland Hospital Acute Tower Replacement Project “Make Ready Work”: $2,800,000 Corbin was able to obtain a contract with Clark Construction on an ATR “Make Ready Work” project which did not require bonding. McNely Construction Company – Highland Hospital Acute Tower Replacement Project: $1,327,000 McNely was able to obtain two contracts with Clark Construction on the ATR. The projects both required the support of the bond guarantee program. Turner Group Construction - Highland Hospital Acute Tower Replacement Project “Make Ready Work”: $5,268,576 Program staff helped Turner Group Construction (TGC) obtain their first bond. Since then, TGC was able to obtain a contract with Clark Construction on the ATR “Make Ready Work” project which did not require bonding. TGC has grown phenomenally since that award and is now completing over $18 Million in construction annually. TGC is also spearheading a neighborhood preservation program through their Richmond office where they are mentoring other small local contractors to renovate housing for low-income and first time homebuyers.

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All Bay Area Glass – East County Hall of Justice: $459,000 All Bay Area Glass was recently awarded a contract with East County Hall of Justice. Shaune Gbana, owner, took over her father’s business (Adolph Glass) which had successfully completed work on the Alameda County Juvenile Justice Center. When Shaune established All Bay Area Glass, she sought assistance from CBAP to obtain her first bond with support of the Program. Growth of the Program As of September 30, 2016, participating contractors completed over $148 Million in contracts. CBAP participant growth is due to the strengthening of their business practices as a result of the technical assistance provided under the Program. Outreach From the inception of the Program, CBAP personnel have coordinated, attended and/or participated in 318 outreach events. At most of these events, staff either provided presentations on bonding or contractor development, or staffing on outreach tables to provide information. Many of these events included matchmaking between participating contractors and prime contractors or upper tier subs. Since May 2009, CBAP staff has also hosted numerous seminars, workshops or other educational events to inform and orient small and local contractors in further preparing themselves for bonding and insurance. These events have been hugely successful, and reaffirm the need for additional education and assistance in the growing number of contractors looking for work. Workshop and seminar topics have included:

• Estimating & Bidding • Business Credit 101 • How to Look for Work

Feedback from contractors on these learning opportunities has been consistently positive:

• Estimating/Bidding Seminar- one contractor stated “Obtained more insight into estimating and bidding.”

• How to Look for Work Seminar- a contractor stated “Brian had a very fluid presentation. A lot of the info provided I believe will be very helpful in expanding my family’s small business.”

Contracting Opportunities We have discovered that the “sweet spot” for small contractors participating in the Program is contracts below $500,000. However, the goal is to continuously increase bonding capacity that will enable participating contractors to take on increasingly larger projects. CBAP has been successful working with Clark Construction (ATR) and Hensel Phelps (East County Hall of Justice) to craft subcontracting assignments tailored to the bonding capacity of the smaller contractors. CBAP will also continue to pursue connections with upcoming and ongoing large and small projects throughout the County for contracting opportunities. Going Forward

1) Continue Program assessment and refinement as necessary The County is currently assessing the Program contours which may lead to changes in program design and placement to another department of the County. From the Program perspective, one-on-one technical assistance is the key to contractor success. Helping contractors from initial assessment to bondability can

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be very time and labor intensive. The information required to complete adequate assessments and provide roadmaps to success and bondability can be overwhelming to small contractors. While establishing and/or increasing bondability is critical to contractor growth, the actual need to obtain bonding for Alameda County projects seems less acute than the one-on-one technical assistance that results in actual contracting opportunities. However, maintaining the connection to the bonding world is a critical component of contractor development. Being able to offer guarantees enhances the contractor’s chances of obtaining bonding with the surety companies. The surety companies see less risk in extending bonding credit to participating contractors who have qualified for a CBAP bond. The zero default rate underscores the well-placed confidence in participating contractors, the support they receive and the efficacy of the program. Being available as a resource that contractors can utilize when it is most beneficial for them has been extremely valuable and meaningful. The Program maintains files for every contractor who makes an inquiry. The retention of the files allows the Program to assist the contractors when ready. Several contractors sought and obtained services several years after their initial inquiry.

2) Workshops and Seminars Continue to offer workshops and seminars and to collaborate with others by providing to improve contractors’ knowledge and understanding regarding construction.

3) Prime Contractor relationships Continue to work with Prime contractors (especially those pre-qualified by the County on major projects) to match contractors with projects, commensurate with their bondability and skill, while increasing bonding limits and accessibility.

4) Integration Continue to Integrate CBAP into the County’s bid processes and opportunities to expose small contractors to contracting and subcontracting opportunities.

5) Collaborative outreach Continue to collaborate with GSA and Public Works on general and project specific outreach to maximize participating contractor involvement in County projects. In the words of our local contractor

Art Cruz of Champion Scaffold Services is quoted as saying the following about CBAP’s impact on his business during a recent interview for our newsletter: “[CBAP] has had a huge impact... I’ll be able to bring in more revenue, to grow the company to where we want to be, and to hire more local people. It’s a win/win for everyone.”