Choosing a surety is not a commodity purchase. On the surface, every bond form looks similar and the premium rate only varies by a few tenths of a percent. Underneath, the financial backbone, underwriting philosophy, claims culture, and the people you will call on your worst day make the difference between a painful experience and a smooth resolution. If you sign contracts that require a payment and performance bond, you are effectively selecting a partner who stands alongside your balance sheet when the project goes sideways. That choice deserves more than a quick quote comparison.
I have sat on both sides of the table, at times asking the surety to stretch a single project limit the Friday before bid day, other times working with owners and lenders who wanted assurance that the surety behind a GC could actually perform. The lessons repeat: the right surety minimizes surprises, supports your growth responsibly, and protects your reputation when pressure peaks.
What a Surety Actually Does, and Why It Matters
A performance bond guarantees completion in accordance with the contract. A payment bond guarantees that subcontractors and suppliers are paid, reducing lien risk and maintaining job flow. The phrase payment and performance bond often gets lumped together, but each obligation pulls on different levers. Performance issues focus on schedule, scope, and cost to complete. Payment disputes focus on cash flow, lien rights, and documentation. When a surety underwrites you, they are underwriting your ability to manage both.
Unlike insurance, suretyship is credit. If a surety spends money due to your default, they can seek reimbursement. That dynamic changes incentives on all sides. A surety that knows construction will spend earlier on a takeover or tender option if it reduces total loss. A surety with limited construction expertise might delay decisions, demand excessive documentation, and allow cost of completion to balloon. You feel the difference in weeks, not months.
The First Screen: Financial Strength You Can Trust
At bid time, owners and lenders tend to look at A.M. Best ratings and Treasury limits. Those are prudent starting points, not the full story. Aim for an A- or better rating from a recognized agency and verify the surety is listed on the U.S. Treasury Circular 570 if you work on federal projects. Then go deeper.
A robust surety has diversified reinsurance, stable combined ratios over multiple cycles, and a track record in construction. I pay attention to loss development triangles in public filings, the volatility of construction segment loss ratios, and the trend in policyholder surplus. Surplus is the capital cushion that supports your single and aggregate programs. If a surety’s surplus is shrinking or its construction book swings wildly, expect tighter underwriting or reduced capacity when you most want to grow.
If your work crosses borders or enters specialty markets, ask about admitted status and licensing in the states or countries where you operate. A surety that must rely on fronting carriers or special arrangements to write your bonds introduces friction at claim time. Better to align with a carrier that can paper the bonds cleanly within its own authority.
Capacity and Appetite: Matching Your Work Mix to the Right Underwriter
Capacity is not just a number on a prequalification letter. It is a set of ceilings for single job and aggregate backlog that move up or down as your financials and project outcomes evolve. When a surety says it can support a 20 million single and a 40 million aggregate, ask how they modeled your cash flow, peak exposures by quarter, and potential layering of maintenance obligations. I have watched contractors accept a generous number, only to discover the surety applied hidden conditions that effectively lower real capacity once soft costs and subcontractor exposures are netted.
Equally important is appetite. Some sureties are comfortable with vertical transportation, specialized healthcare, or complex water work. Others prefer K-12 schools and municipal roads. A mismatch between your project mix and the surety’s appetite shows up as slow approvals, nitpicky questions on every submission, and a reluctance to support reasonable change orders. Ask for examples of projects similar to yours that they supported in the last two years. Pay attention to size, complexity, and delivery method. If you build GMP hospitals with heavy MEP coordination, a surety that mostly backs small bid-build roadwork may not give you the advocacy you need when a schedule slips due to owner-driven design changes.
People and Process: The Underwriting Relationship
You will live with the personalities of your underwriter and their manager. Sophisticated balance sheets do not help if you cannot get a phone call returned during a bid crunch. Sit down with the underwriting team that will actually handle your account, not just the business development face. Discuss how they make decisions, what authority sits locally versus in the home office, and how they handle exceptions.
Good underwriters ask hard questions without grandstanding. They respect job-level realities, read financial statements with nuance, and back their positions with data. The best ones keep a running memory of your jobs and apply pattern recognition. If your firm operates on thin margins because you self-perform concrete with an efficient crew, a good underwriter sees competence in your wage rates and productivity history. A poor one only sees risk in the percentage.
Process matters as much as judgment. How do they evaluate submissions? Do they maintain a standard checklist, or do they reinvent the wheel at every job? What is their timeline for routine consents of assignment, change order https://sites.google.com/view/axcess-surety/license-and-permit-bonds/connecticut/connecticut-professional-fund-raiser-bond endorsements, or capacity bump requests within the short fuse of a negotiated award? The practical pain of a slow consent or a late power of attorney lands on you when the owner holds up your notice to proceed.
Claims Culture: What Happens When Things Go Wrong
Most contractors pick a surety during a streak of good years and only learn about the claims team under stress. Invest the time up front. Ask to meet a claims manager or, at minimum, have your broker walk you through their approach on a real case, with anonymized details. Find out how they handle tender versus takeover decisions and under what conditions they will finance the principal to complete. Ask about their panel of completion contractors in your region and whether they have relationships with your subs in case of a step-in.
You want a surety that acts decisively and proportionally. Delay is the enemy of cost-effective completion. I recall a mid-sized GC whose surety hesitated for eight weeks while the owner hemorrhaged patience and winter approached. The ultimate takeover cost was 18 percent higher than a tender price the contractor had lined up in week two. The claims team had limited construction experience and treated the file like a generic credit workout. The outcome would have been different with a claims group practiced in field triage and ready to get boots on the ground.
Just as important is their philosophy on indemnity. The general agreement of indemnity is broad. Still, there is room for practical accommodation when a default stems from a discrete dispute rather than systemic weakness. Some sureties will collaborate on funding a structured resolution that preserves your enterprise value. Others will push liquidation prematurely. You cannot contract around this, but you can choose a surety with a history of pragmatism.
The Broker’s Role, and How to Get the Most Out of It
A specialized surety broker can tilt the playing field in your favor. They translate your story into underwriting terms, push for capacity based on your trajectory rather than just your last audited balance sheet, and negotiate sensible conditions. Not all brokers are equal. Look for a team that invests in jobsite visits, understands WIP schedules beyond the surface, and has placement options among multiple quality carriers. If a broker places 90 percent of their book with one surety, expect limited leverage when you need an exception.
Transparency with your broker pays dividends. Share your monthly WIP, cash flow forecasts, and job cost reports even when the news is mixed. Surprises damage credibility. A broker who sees a wobble early can work with the surety to create room, whether that means revising bank covenants, structuring an interim capital infusion, or trimming your bid slate until a tough job turns the corner. I have seen contractors keep a surety onside through two quarters of thin results because the broker could frame every negative variance with the field context and a clear path to recovery.
Reading Your Financials Through the Surety’s Eyes
Surety underwriting leans heavily on financial statements, but the most useful data sits inside the WIP schedule and job cost details. The headline numbers pose questions. The granular numbers provide answers.
Gross profit fade is the first red flag. If your year-to-date margin on a project compresses from 12 percent to 8 percent, a sharp underwriter will ask whether the fade is timing, scope, or productivity. A pattern of systematic fade across many jobs suggests optimistic estimating or weak change order discipline. Underwriters also analyze billing positions: heavily overbilled jobs create cushion, but overbilling must be matched with liquidity and realistic cost to complete. Underbilling can indicate unapproved change orders or poor project management, and it ties up cash when you most need it.
Cash is king in construction, yet I weigh the composition of cash more than the headline balance. Is it trust money for subs? Is it backed by retention that releases in six months or in two years? Are you relying on a seasonal line of credit to smooth payroll, or do you maintain operating liquidity even at winter low points? The surety will look at working capital quality, not just quantity. Inventory that turns slowly and receivables that age past 90 days help less than cash and short-term investments.
Finally, keep an eye on contingent liabilities and related-party transactions. Intercompany loans to a real estate affiliate or equipment company raise questions about cash leakage. The surety expects a strong indemnity position; anything that weakens collateral arrangements, such as second liens or heavy factoring, will be scrutinized.
Paper That Protects: Bond Forms and Contract Alignment
Not all bond forms are equal. Standard AIA or ConsensusDocs forms have predictable obligations, but many owners draft bespoke forms that broaden the surety’s liabilities or compress cure periods in ways that choke practical problem solving. A thoughtful surety will mark unacceptable provisions and propose balanced alternatives. You want that discipline, even when the owner says, sign as-is or lose the job. I have watched contractors solve millions in downstream headaches by pushing for reasonable default notices, time to investigate, and clarity on consequential damages.
Your subcontract forms matter too. Payment bond claims usually flow from sub and supplier disputes. Strong pay-when-paid language without a fair exception for owner insolvency invites litigation and a chilly response at claim time. Using consistent, reviewed subcontracts and filing preliminary notices where required can prevent a payment bond claim from ever ripening.
Pricing: What the Premium Does and Does Not Tell You
Bond premium rates typically fall into a narrow band. For most standard accounts, performance and payment bond rates might range from 0.75 percent to 1.5 percent of the penal sum, sometimes lower on large schedules with tiered rates. A low premium does not compensate for weak capacity or a combative claims posture. When you are deciding between two sureties with similar financial strength, a tenth of a percent on premium should not outweigh responsiveness, appetite fit, and claims culture.
Watch add-ons and fees. Power of attorney verification fees, bond form review charges, or per-endorsement costs add friction. Some sureties absorb routine costs to keep the relationship clean. Others pass through minor charges that signal a transactional mindset. Over a year, those charges are modest, but they foreshadow how exchanges will feel when the stakes are higher.
Growth Plans: Will the Surety Support the Next Step?
Ambition is healthy, but sureties measure growth differently than equity investors. Explosive top-line growth with thin capitalization worries them. Sustainable growth funded by retained earnings, predictable gross margins, and stable overhead looks better. Share your three-year plan with the underwriter. Build a map of needed single and aggregate capacity by quarter based on realistic bid calendars and award probabilities. If you plan to enter a new market, bring a preconstruction plan, a field leader’s resume, and a conservative first-year volume target. I have seen underwriters stretch to support a contractor’s jump from 15 million to 30 million single project limits when they had credible leadership hires and a staggered backlog build.
Banking relationships influence surety capacity. A committed revolver with clean covenants, plus a lender that understands construction cycles, makes a surety more comfortable. If your bank line is scheduled to mature within the next year, start renewal discussions early and keep the surety updated. A last-minute scramble creates doubt that bleeds into bond approvals.
Red Flags You Can Spot Early
- Repeated turnover of your assigned underwriter or account manager within the surety, especially within a year. Vague or variable answers about authority levels and who can approve exceptions. Slow turnaround on routine requests such as consents of assignment, power of attorney reissues, or change order endorsements. Reluctance to discuss real claim examples or to let you meet a claims manager in advance. Pressure to sign nonstandard indemnity provisions without a clear business reason.
If you encounter two or more of these, reevaluate the fit. A surety relationship should reduce friction in your business, not add to it.
A Practical Path to Selecting the Right Surety
Here is a compact field-tested approach that keeps the process intentional without bogging down. Use it when you are establishing your first relationship or when you sense your current partner has outgrown your needs.
- Clarify your next 18 months: target revenue, typical job size, delivery methods, and any new markets you plan to enter. Put numbers to it, even if they are ranges. Gather a clean package: last three fiscal year financials with CPA notes, current interim statements, 12-month cash flow forecast, detailed WIP, top customer references, resumes for key operations leaders, and your standard subcontract and change order procedures. Interview two or three sureties with a construction focus that matches your work mix. Meet underwriting and claims, and ask for decision timelines and authority levels. Ask for a draft facility letter outlining single and aggregate capacity, program conditions, and any financial triggers that could reduce capacity. Stress test these against your forecast. Call two contractors of similar size and work type who have been with the surety at least two years. Ask specifically about bid-day responsiveness, claim handling, and how the surety behaved after a bad quarter.
Keep notes and score the intangibles. If a surety’s claims person speaks concretely about options and timelines, that is worth more than a slightly better premium quote.
Special Situations and Edge Cases
Not every contractor fits the classic mold. Emerging contractors, design-build specialists, and firms with volatile project profiles need tailored support.
Startups with experienced teams but thin capital can secure programs if they offer strong personal indemnity, a solid bank line, and disciplined project selection. I worked with a contractor spun out from a national CM firm. They staffed up with field leaders who had built nine-figure jobs, but they wisely took a series of five to eight million projects for the first year, proving their WIP controls. Their surety doubled capacity within 12 months because performance matched the plan.
For design-build heavy firms, the surety will pay close attention to design risk management. Show your QA/QC processes, how you allocate design risk in subcontracts, and your professional liability program. The intersection of performance bond obligations with design errors can get messy. A surety that knows this space will ask better questions and stand more confidently behind you when a design dispute surfaces.
Contractors who self-perform significant scopes, especially concrete, electrical, or mechanical, demand a surety that understands labor risk and productivity tracking. Bring field productivity metrics to meetings. Show earned value charts and how you manage crew loading relative to schedule. Underwriters who grasp these levers are more comfortable with higher single job limits because they can see control, not just exposure.
Finally, heavy use of joint ventures or teaming agreements raises unique issues. Bonding a JV requires a clear allocation of responsibilities, indemnity alignment, and bank support for the JV entity. If you plan to JV on a marquee project, involve your surety early. They can help structure the arrangement so that approvals flow when timing is tight.
Contract Administration: The Everyday Habits That Keep Your Surety Confident
Even the best match can sour if field practices undermine cash and documentation. Sureties remember contractors who keep paperwork tight and job narratives clear. Three habits make a visible difference.
First, document the schedule of values with enough granularity to track earned revenue honestly. Avoid front-loading that sets you up for a cash cliff late in the job. A thoughtful underwriter appreciates reality, but chronic overbilling followed by sharp fade breeds suspicion.
Second, treat change orders as a process, not an afterthought. Price promptly, maintain clear T&M tickets when scope is unclear, and escalate diplomatically when approvals stall. Underbilling due to unapproved change orders is the single most common precursor to cash stress.
Third, own your closeout. Punch lists that linger and retention that sits unpaid for months drain liquidity and patience. Build closeout milestones into your internal schedules and hold subs accountable with documentation requirements that mirror the owner’s.
When you consistently operate this way, your surety will stretch more readily when you ask for expedited approvals or a capacity bump, because your jobs generate fewer unpleasant surprises.
Technology, Data, and How They Influence Underwriting
Surety underwriting has become more data-informed in the last decade, but the best decisions still hinge on context. Many carriers integrate feeds from construction analytics platforms to benchmark your WIP fade, billing patterns, and project durations against peers. If your data systems can produce clean, consistent exports, you benefit.
Consider standardizing your cost codes across jobs and keeping job narratives current within your project management platform. When an underwriter can see a concise monthly note that explains why steel deliveries slipped and how the schedule recovered, they are less likely to assume the worst. In several accounts I have handled, a simple discipline of monthly narrative updates reduced the number of follow-up questions and cut approval times by days.
When to Change Sureties, and How to Do It Without Disrupting Work
Switching sureties is not trivial. Open projects, maintenance bond obligations, and indemnity agreements can tangle the transition. Still, there are legitimate reasons to move: chronic slow approvals, misaligned appetite after a change in your work mix, or a new leadership team inside the carrier that resets culture.
Time a move to coincide with a natural lull in bid volume or when most jobs are past their peak risk. Work with your broker to map open obligations, including any warranty periods that might require maintenance bonds for 12 to 24 months. Secure a new facility letter first, then phase new awards to the new surety while the prior one continues to support existing bonds. Avoid mixing sureties on change order riders and consent matters for the same project. Clarity reduces paperwork and keeps owners comfortable.
If you have collateral posted with the current surety, plan for a structured release schedule tied to job milestones. Do not expect an immediate unwind the day you move. Be transparent about the transition with key clients. Owners value continuity; reassure them by introducing the new surety contact and sharing credentials ahead of the first bond issuance.
The Quiet Benefits of the Right Match
When the right surety stands behind you, a few subtle advantages accrue. Your prequalification letters carry weight in negotiations. Lenders read your bond line as an external validation of your financial stewardship, sometimes softening fixed-charge coverage tests or opening room for seasonal borrowings. Subs bid you more comfortably when they know payment risk is properly handled, which tightens your numbers on bid day. Your own team feels the difference, because approvals arrive on time and the underwriting conversation feels like collaboration rather than interrogation.
On the other hand, a poor match saps momentum. Every exceptional request becomes a battle. Claims linger. Your estimating team hedges capacity uncertainty by skipping opportunities you could have won. Those costs never show on a P&L, but they bleed through your pipeline.
Bringing It All Together
Selecting a surety for a payment and performance bond program is a strategic decision. Start with financial strength, then test fit against your project profile, leadership depth, and growth plans. Spend real time with the people who will underwrite and, if needed, adjudicate your toughest moments. Use your broker as a translator and advocate, but own the narrative, backed by numbers that tell a consistent story. Look for decisiveness in claims, clarity in authority, and a willingness to invest in your long-term success.
The construction business rewards control: control of scope, schedule, cost, and risk. A good surety amplifies that control. It brings patient capital, pragmatic judgment, and a steady hand when the job gets noisy. Choose with care, maintain the relationship with the same discipline you bring to the field, and your bonding capacity will not just support your work, it will quietly expand what you can take on next.