Archive of Prior Bonding Tips

Tip #27: Make bid estimates sufficiently high.

Explanation: When submitting a bid bond request, make the contract amount high enough to allow for last minute increases.  There is no harm in bidding less than indicated. 

   Depending on the bond, it may not be possible to bid for more than requested / approved.  Even if you can bid for more than approved, doing so may jeopardize the entire bonding relationship.

Tip #26: Have a quality control procedure for major bid  proposals.

ExplanationEvery underwriter has heard the stories about the “bad estimator (no longer with the company) who got us on a bunch of underpriced jobs.”

   You bid work and you perform it. If you go in with a bad estimate you have no chance of succeeding. The last thing your surety wants is to complete an underpriced contract. 

   Major proposals must be double checked for accuracy.


Tip # 25: Some form of mid-year financial report is needed.

Explanation: These are typically less formal than the fiscal year-end report. 


For example:

Year-end CPA Review, followed by six month Compilation

Year-end Compilation, followed by six month internal FS such as Quick Books (not on the Cash Method)


Sureties use the mid-year report to monitor the contractors progress.  They are not used as the primary focus for decision-making, but they can result in a withdrawal of surety support if an unfavorable trend emerges.


Tip # 24: The Cash Method of accounting is not acceptable for surety (or bank) reporting.

Explanation: This is the “cigar box” accounting method.  It only includes what you have in hand, and excludes what you owe or are owed.  (OK to use for tax reporting.)

  Most contractors use the Accrual Method or the more sophisticated Percentage of Completion Method. When in doubt, check with your bond underwriter to confirm their requirements before financial documents are prepared.

Tip #23: Get a CPA Review at year-end if seeking bonds for $1-2 million each or more.

Explanation: A Review is more expensive than a Compilation.  But it includes some level of verification and checking, and there are accompanying notes and schedules – all important to the reader.

  CPA Compilations, bookkeeper financials and internal reports are only for small bond users.

Tip # 22: Be cautious when holding back the year-end financial statements.

Explanation: No news may be worse than the actual report. Credit grantors (sureties and banks) expect the FS within 90 days of the year-end. Sometimes there are broken loan covenants or the client is seeking forbearance. The effort to “clean up” the financial statement can lead to protracted delay.

  Many sureties will refuse to grant bonding credit during such a delay.

Tip # 21: Maximizing bank credit can help your bonding.


  • Even if you don’t expect to need it, maximizing your bank credit will help support your bonding.
  • Bond underwriting includes a credit analysis.  If the bank supports you, it proves to the surety that you are credit worthy and therefore deserving of bonds.
  • Bank credit is a financial resource that could be the key to completing a bonded project and avoiding a bond claim or default.
  • Even if all your bank credit is in use, it still proves you were able to qualify for the line.

Tip #20: Your capacity request should match prior experience and financial factors.

Explanation: If the underwriters feel your expectations are excessive, they may not want to develop your file.  After all, they don’t want to work on it but have no chance of acquiring your account.

  The individual bond amount (the “single”) is normally not more than 2 times greater than the largest contract previously completed.  Aggregate bond capacity may be from 1 to 2 times the single. Working Capital should not be much less than 10% of the aggregate capacity. 

  Other factors are also considered.

Tip #19: Hopping around – multiple sureties over a short period of time will raise concerns.

Explanation: Setting up a bond account is an expensive proposition for the surety.  They are looking for customer loyalty and stability.

  Long term relationships tend to produce more capacity and better terms for the contractor.  If you like to hop around on your insurance every year (keep ‘em honest), try not to do so on your bonds.

Tip #18: Continuity – Bonding companies want to be sure there is a continuance plan upon the death or disability of key individuals.

ExplanationWhat will happen if the key person is gone?  Will competitors immediately come in and hire away the best employees? Ownership and control of the company may now be in the hands of a spouse who was never active in the company.  Will that person be equipped to assume the responsibility and perform?  Will employees want to work for the new owner? Can the surety be confident the bonded jobs will be completed?

  Consider a buyout plan with key individuals and completion bonuses on open contracts.  Key man life insurance can help ease the transition.

Tip #17: Paper GC – Many bonding companies are reluctant to bond firms that give out all the work.

Explanation: Sureties hope to determine your likelihood of succeeding on the bonded jobs by identifying your skills and capabilities. If the practice is to give out all the work, the underwriter may be unwilling to depend on others whose capabilities are unknown.

  The Contractor Questionnaire intends to bring out these points when it asks for the percentage of work you sub out vs. self-perform. Underwriters also look for fixed assets such as plant and equipment on the Balance Sheet, and direct project labor on the Profit and Loss Statement.

Tip #16: Employee background checks are important.  If you don’t have a procedure for this, get one.

Explanation: Bonding companies are inclined to ask about this because a bad employee can take a bite out of your company – both money and time. Your screening procedure should confirm capabilities and good character.

  Also consider a Blanket Fidelity Bond.  This inexpensive coverage protects the company for employee theft. Many firms have suffered embezzlement by long-term, trusted employees.

Tip #15: Young companies can supplement their history by providing resumes of key people.

Explanation: Many sureties will not accept applicants with less than 3-5 years of operating history under the current name and ownership structure.

  When experienced construction professionals start their own companies, their resumes will be a key element explaining skills and capabilities demonstrated on prior projects.  Be sure to include contract details including description, year completed, dollar value and your personal responsibilities.

Tip #14: Litigation – open suits must be disclosed on the Contractor Questionnaire.

Explanation: Such facts will become known to the surety from a variety of sources. For example, your CPA may be required to disclose open litigation in the financial statement notes. 

  If you are a defendant, the surety will want to know the cause of the action and the financial implications. It can help if your attorney writes a letter of explanation and predicts the likely outcome.

  It is better to volunteer this info on the application, and offer the explanation YOU feel is appropriate.

Tip #13: Avoid acting as a surety or indemnitor for others.

Explanation: Underwriters provide bonds based on your skills, experience and resources. Why risk having another party cause a loss on your bond account, with you personally responsible to pay back the surety?

Tip #12: Bonding companies don’t like speculative building and will disallow such assets from the Working Capital and Net Worth (building with no known buyer for the property.)

Explanation: Spec building is your own risk if you undertake it personally.  If the company has a spec project it can become a financial handicap and therefore affect the surety. Avoid spec building if you desire bonds.  If the company has such an asset, consider transferring ownership to another entity or person.

Tip #11: Sureties don’t want Factors used on bonded jobs.

Explanation: A factor stands between the contractor and the project owner. They front each payment for a small fee, so the contractor doesn’t have to wait to collect the requisition. The contract funds flow from the owner to the factor, then to the contractor. In the event of a default, this arrangement could jeopardize the bonding companies’ ability to complete the project efficiently and with no financial loss.

Tip #10: Financial info will be needed on other entities that are owned or controlled – even if they don’t need bonds.

Explanation: Subsidiaries and Affiliates are all part of the big picture. Underwriters want to know if the other companies help or hurt your ability to perform on the bonded contracts.
  There is an expense involved, but sometimes a “Consolidated Financial Statement” is the best way to include these in the financial picture.

Tip #9: Don’t borrow money from the company.

Explanation: This creates an Asset on the company Balance Sheet called “Stockholder’s Loan Receivable.” Bond underwriters typically disallow this asset by deducting it from Working Capital and Net Worth. Try to avoid such transactions.

  Extra Tip: If you have already borrowed from your company, start paying it back now.

Tip #8: Unpaid taxes can result in a tax lien even if you have been told to not make payments while the matter is under appeal.

Explanation: During an appeal, the government may file a tax lien to perfect it rights. They do this with no regard for the effects a lien may have on your credit rating, your banking or your bonding relationship.

  Talk to your attorney about paying the disputed amount during the appeal process.

Tip #7: Tax disputes – if they result in a Tax Lien, you may lose more money by fighting it than by paying it off.

Explanation: Tax Liens are viewed as a possible indication of poor management, insufficient cash flow and/or bad accounting practices. This can hold back your bonding and keep you from acquiring new projects. Weigh the advantages. It may be better to pay the tax bill and keep your credit report clear.

Tip #6: If there is a default or bankruptcy in the company or personal history of the owners, provide full disclosure with an explanation and offer documentation.

Explanation: There are often legitimate reasons for such events. It is important to explain why it happened and the events/actions that followed. There are bonding companies that will be understanding and welcome the business.

  Ultimately, such historical details cannot be concealed. They will be seen in the credit reports and background checks.

Tip #5: Owners spouses’ info must be included in all areas including the Contractors Questionnaire and personal financial statements.

Explanation: All bonding companies expect to have the personal indemnity of owner’s spouses because the company is normally considered joint marital property.  This means both spouses share equally in the ownership of the company – even if they do not both actively work in it. The underwriters will always determine of the owners are married.  If the spouse info has been omitted it is an immediate red flag.

Tip #4: The Contractors Questionnaire should be filled out completely, signed and dated.

Explanation: Every surety requires this form. It provides important basic info about the company and its owners. It is better to answer every question and provide additional explanations than to leave questions blank. Unanswered questions make the reader suspicion that critical info is being withheld. It gets the relationship off on the wrong foot.

Tip #3: Insurance companies expect losses. Bonding companies don’t.

Explanation: Bond fees are too low to pay for claims and losses. You must present yourself and your account in a manner that makes the underwriter confident you will not default or cause a claim. That’s the only way bonds get approved.

Tip #2: Allow extra time when requesting the first bond from a new bonding company.

Explanation: The review process on bonds is very thorough, and can take a couple of weeks or even months in some cases. Once your account it set up, ordering each bond is much faster (couple of days.)

Tip #1: There have been changes in the surety market.  You may find that today's bonding companies are more willing than you recall!

Explanation: We see bonds being required by GCs and lenders more than ever before.  Along with other factors, this demand has led to new capacity in the market.  This means there are bonding companies looking to acquire clients and establish themselves.

There are also "EZ" programs for bonds below $500,000.  These can be as simple as a one page application (no financial statements, etc.)


When is the best time to start?  Now! Call us: 856-304-7348

About Us: For over 30 years, specializing in providing Bid and Performance Bonds for contractors.  
We have a range of capable, highly rated sureties available to provide capacity and favorable bonding terms.
Call us and lets set up or improve your bonding program. 856-304-7348
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