How can contractors position themselves for increased bonding capacity in advance of pursuing larger projects?
Jay Quillinan
Senior Vice President, Construction Surety Director
Chubb
As contractors pursue larger single projects and growing bond programs, sureties will look for evidence that growth is being managed deliberately and that the contractor is positioned to absorb the added scale, complexity and risk.
Plan Ahead and Stay in Communication
Contractors who have planned for growth in advance and maintain early and ongoing communication with their surety are better positioned to secure additional surety capacity—allowing emerging opportunities and growing backlogs to be evaluated well before bid or solicitation.
Transparency Is Critical
The surety needs timely visibility into the contractor’s financial position, labor and equipment availability, subcontractor capacity and the alignment of prior experience with the risk profile of the proposed work.
What Surety Underwriters Are Evaluating
Among other considerations, underwriters give particular attention to:
- The contractor’s balance sheet strength relative to backlog, cash flow and capitalization needs
- The contractor’s ability to manage supply-chain constraints, procurement lead times and inflationary pressure on labor, materials and equipment—all of which can affect pricing, margins, schedule performance and overall execution
- A thorough review of contract terms and conditions before bid or solicitation
The Path to Increased Surety Capacity
Sureties have become increasingly comfortable supporting larger contracts and growing programs when these fundamentals are present. The strongest outcomes often occur where the relationship is built on open, candid and ongoing dialogue—and where the contractor demonstrates a clear strategy, disciplined execution controls and a credible plan for commensurate growth in capitalization to support a growing backlog. Together, communication, transparency and preparation facilitate the surety’s evaluation of and support for the contractor’s opportunities.
What should contractors know about the three Cs (character, capacity and capital) used to evaluate contractors for surety capacity?
Carmon Wilson
Regional Director
Nationwide Surety
In today’s construction market, the biggest threat to a contractor’s bonding program may not be a lack of work. It may be growing faster than the business can support. For more than a century, sureties have evaluated contractors using the three Cs: character, capacity and capital. While the framework remains unchanged, today’s market has risen its stakes. Character is often the deciding factor. It reflects management credibility, transparency and a contractor’s willingness to address challenges before they become problems. When costs fluctuate, schedules slip or disputes arise, sureties place tremendous value on owners who communicate early and honestly. Capacity is no longer measured solely by backlog volume. Today’s projects are larger, schedules are tighter and labor remains difficult to secure. A contractor’s ability to attract talent, manage subcontractors, execute work and successfully scale operations is under greater scrutiny than ever. Recent growth in data center, energy and infrastructure construction has increased competition for skilled labor and project resources. Capital remains the financial foundation. Strong working capital, liquidity and ability to collect receivables provide flexibility when materials costs rise, collections slow or project conditions change unexpectedly. The best contractors understand an important truth, that bonding capacity is not created by financial statements alone. It is built through trusted leadership, proven execution and financial discipline. In any market cycle, contractors who strengthen all three Cs position themselves for sustainable growth and greater opportunity.
Gregory Conlon
Underwriting Consulting Director
CNA Surety
Suretyship dates back 5,000 years. Although projects and underwriting have become more complex, the core principles remain the same: Does the contractor have the capacity, capital and character, to perform the work? How does the surety evaluate them?
Capacity is the contractor’s ability to perform the work. Underwriters first consider experience with similar projects and scopes. When that experience is less directly comparable, they look more closely at management depth, equipment and labor availability, along with overall project approach. Evaluation of existing staff, processes and systems, all coincide to assess successful execution.
Capital is the financial strength behind the company. Maintaining adequate working capital and net worth to support current projects and backlog growth is critical. Underwriters look for retained cash to address unforeseen construction challenges, along with manageable debt and leverage. The goal is to create a strong balance sheet that can absorb project issues and support continued performance.
Character: “Your word is your bond.” Although familiar, the phrase captures why character remains central to underwriting. Surety is a relationship-driven business built on trust among the contractor, agent and surety. These relationships help underwriters understand both the business and the people behind it, ultimately informing the key question: Will they perform?
Underwriters evaluate how management approaches risk and uncertainty, while also getting to know the people behind the business. This insight develops through open and transparent communication. Over time, that communication strengthens the relationship among the contractor, agent and surety—and reinforces the “bond” itself.
What do the strongest contractor-surety relationships have in common?
Brock Masterson
Chief Operating Officer
Crum & Forster
The healthiest surety relationships are those based on a foundation of open communication, transparency and mutual respect. Open dialogue can benefit all parties when expertise and strategies are shared proactively. An experienced surety underwriter and agent should be valuable resources for a contractor. With a large portfolio of customers, the right surety can offer best practices on everything from contract language to favorable ownership continuity strategies.
Contractors can support the underwriting process by openly discussing the company’s business strategies and plans for the future. Sharing the vision of the company’s past, present and future is vital so that underwriters are prepared to support future changes such as expansion into new territories and lines of business. Since surety credit is heavily predicated on strong personal relationships, there should be ongoing exposure and dialogue with multiple layers of leaders within the company to maintain continuity across generations.
There are inevitable challenges in the construction cycle—problem jobs, price escalation concerns, and labor and supply-chain issues to name a few. When a contractor recognizes a challenge, they gain significant credibility with the surety by proactively and objectively discussing the concern along with their plan to mitigate the impact to the company. In legal scenarios, a top surety and agent can offer claims perspectives to work towards the best possible outcome at the time. Additionally, collaborating with the surety is the best way to ensure that the contractor maintains the necessary surety capacity to support operations even in challenging times.
Monica Donatelli
NASBP President
National Association of Surety Bond Producers
The strongest contractor-surety relationships are built on trust, transparency and success. While financial strength is important, relationships extend beyond balance sheets and indemnity agreements.
At the center of these relationships is a surety broker who helps bridge the needs of the contractor and the surety. The broker’s role extends beyond placing bonds. They provide guidance, advocate for the contractor and help align bonding capacity with business objectives.
Strong contractors communicate openly and proactively, keeping both their broker and surety informed about opportunities, challenges and strategic plans. This transparency allows the broker to anticipate issues and ensure the surety has the information needed to make informed decisions. In turn, the surety gains confidence in the contractor and the team supporting them.
Consistency is another hallmark of strong relationships. Contractors that reliably execute projects, maintain financial discipline and follow operational practices earn credibility over time. That credibility creates predictability, a key driver of underwriter confidence.
Over time, these qualities create enduring partnerships. While relationships may be tested during difficult projects or unexpected setbacks, they are not built in those moments. Challenging times reveal the strength of trust, communication and advocacy established long before adversity occurs.
Ultimately, the best contractor-surety relationships are strengthened by a broker who serves as a trusted business partner to both parties. By bringing market insight, technical expertise and advocacy, the broker transforms surety from a transactional requirement into a strategic asset. The result is greater confidence for the surety, greater opportunity for the contractor and long-term success.
What accounting missteps most commonly raise red flags during surety review?
Chavon Wilcox
Construction Industry Leader and Audit Partner
Aprio
Sureties aren’t just evaluating financial results; they’re evaluating the reliability of the processes behind them. Three accounting issues consistently attract scrutiny under surety review.
The first is gross profit fade. When margins decline from bid to completion, sureties typically see more than an isolated project issue. They often view it as a sign that estimating, job costing or project controls may not be holding up in practice. Reviewing fade at the individual job level helps identify patterns before they impact future backlog performance.
The second is billing distortion. Overbillings can create the appearance of strong cash flow, but underwriters often recalculate cost-to-complete and evaluate whether future work is effectively funding current obligations. Monthly reconciliation of billings to actual project progress helps prevent imbalances from accumulating unnoticed.
The third is a reduction in financial statement assurance. Moving from audited to reviewed statements, or from reviewed to compiled statements, frequently raises questions regardless of the reason. Sureties place significant value on the credibility that higher levels of assurance provide. Proactive communication before making a change can help avoid unnecessary concern.
None of these missteps are necessarily deal-breakers. More often, they reflect estimating, billing or reporting processes that have not been developed with surety underwriting in mind. Contractors that address these areas through disciplined monthly reviews tend to build credibility, reduce underwriting friction and preserve bonding capacity as they grow.
Which changes to financial statements most often trigger re-evaluation by sureties?
Emilio F. Alvarez, CPA
Managing Partner | Audit
H&CO
The underwriting process that precedes a surety decision usually contains the elements that cause the success or failure of a bonding capacity request.
Much like a lottery, the more tickets you have, the bigger the probability of a positive outcome. In this case, the tickets analogy is invariably made up of financial decisions and financial reporting decisions.
Salient among the changes in financial reporting that will cause a surety to re-evaluate your request are:
- Using percentage-of-completion accounting for revenue recognition
- Using the services of a known construction CPA
- Upgrading from compiled statements to review or from review to audited
- Adhering to timely financial reporting
- Including in the financial statements all the information that is needed by the surety in its underwriting process
Successful surety underwriting is a combined effort that invariably includes full disclosure, cooperation and a clear understanding of the facts by everyone.
What impact has the increase in large-scale infrastructure, data center and renewable energy projects had on the availability of surety bonding?
Aaron DeRoss
Senior Vice President & Chief Underwriting Officer, National Accounts
Liberty Mutual Surety
It was not long ago that a $100-million project was considered very large in the surety industry. In the past few years, we’ve seen a significant rise in megaprojects exceeding $1 billion, driven by inflation, substantial investment in aging infrastructure, renewable energy and the AI-fueled surge in data center construction across the United States.
Surety capacity both on single projects and aggregate programs has increased exponentially, and the surety market has stepped up to meet the growing demand for our best-in-class clients. We are finding capacity at the top end of the credit curve, but not all accounts are created equal. We are seeing gaps in support and not enough capacity for clients having operating challenges and legacy problem projects. The challenge beyond the sheer size of the projects is that balance sheets have not always kept up with this growth. Underwriters continue to stress the importance of retained earnings growth while maintaining a robust overall indemnity/security package to support the increased demand for our product.
We are seeing surety brokers proactively bringing in new sureties to deal with the aggregate needs, leading to new client opportunities. The industry has developed additional underwriting tools and actuarial models to assess maximum line size and conduct tolerance testing within an enterprise risk framework. Credit and capacity are not unlimited, and while the industry continues to look at creative ways to optimize available capacity, balancing growing demand with finite resources will remain a challenge for the foreseeable future.
What are the key factors used to help a contractor secure surety bonding and how can a CPA firm help?
Joseph Natarelli
National Construction Leader
CBIZ
From the perspective of a surety, there’s nothing more important than the accuracy and detail within a prospect’s financial statements. Sureties rely on that information to determine a prospect’s suitability for financing and, ultimately, the total financing capacity a contractor can be offered. Fortunately, CPAs with experience serving the construction industry are well positioned to document the details and help contractors get their financial house in order—that includes compiling evidence attesting to the reliability of their numbers.
Construction is a unique business, with a huge amount of contingencies within each project. That translates to serious accounting complexity and is one reason it’s always smart to work with CPAs that have direct experience serving the industry. For instance, take calculating cash-flow. In construction, it’s not a simple formula of “what comes in” minus “what goes out.” Instead, it requires a close look at each project, its percentage of completion, allocating costs of labor and material, the accounting method associated with that project, and other details that CPAs primarily working in other industries might easily miss.
With confidence that the numbers in financial statements are well supported and in-line with industry expectations, sureties can offer more favorable terms or higher bonding capacities. That, in turn, can empower contractors to take on new and more valuable opportunities.
What advice do you have for contractors on how to prepare a work-in-progress report for a surety?
Marshall Shepherd
Audit Partner
Melton & Melton LLP
As a CPA with twenty-plus years in public accounting and a construction practice leader in Houston and the surrounding region, I can tell you your work-in-progress schedule is the single most scrutinized document in your bonding file. Prepare it as if your underwriter reads every line, because they do.
First, make it monthly, not annual. A WIP schedule prepared once a year, when the CPA arrives, signals weak internal controls. Close the job-cost ledger monthly, prepare the schedule monthly and reconcile earned revenue to your income statement. If the WIP does not tie to your financials contract by contract, the surety will question everything else.
Second, require project managers to sign off on costs to complete. Percentage of completion under ASC 606 is only as reliable as that estimate. Optimism and sandbagging both destroy credibility; sureties track gross-profit fade job by job, and a pattern of fade is what erodes bonding capacity.
Third, separate approved change orders from unapproved and pending ones. Growing underbillings (costs in excess of billings) often mask unapproved changes or unrecognized losses, so be ready to explain them with documentation. And remember the other direction: Significant overbillings, where billings exceed earned revenue, must be supported by real cash and receivables.
Finally, never surprise your surety. Bad news delivered early, with a plan, is treated far more generously than bad news discovered. A clean, timely, well-documented WIP schedule protects your capacity and your credibility.
How is AI changing the underwriting process, and where is human judgment still essential?
Jason Dettbarn
Senior Vice President, National Contract Surety Leader
Merchants Bonding Company
AI is changing our industry from every direction at once. Contractors are using it to sharpen estimates, tighten scheduling and catch risk earlier. The very same technology is also starting to reshape what we look for as underwriters. AI’s value is real, but it’s only as good as the data behind it. When we evaluate a bonded contractor today, we pay closer attention to how the technology fits their operation: Is the data feeding it accurate and current? Does the tool integrate with their existing systems, or does it create a blind spot? And, most importantly, does a person still own the output?
That last question matters because the jobs most resistant to disruption are still the ones that call for judgment on the ground: installing structural steel, troubleshooting a live system, adapting to conditions no model anticipated. Recent research backs this up. Skilled trades are seeing a lot less disruption than office-based work. That doesn’t mean underwriting is untouched. AI is helping us process more information faster. But it hasn’t replaced the judgment call at the center of every bond: Does this contractor have the character, capacity and track record to deliver? That’s still a human decision, and I don’t expect that to change anytime soon.
Bhisham Sant
Vice President, Contract Surety
Arch Insurance Group Inc.
AI is changing the surety underwriting process by making underwriters more efficient and productive.
Underwriting has always required gathering and analyzing large volumes of information, including financial statements, work-in-progress schedules and contracts. AI can quickly help identify trends, flag unusual changes and summarize information—analysis that once required hours or days.
But underwriting isn’t simply about identifying what happened in the numbers. It’s about understanding why it happened.
Underwriters can use AI to identify declining margins, deteriorating accounts receivable or unusual movements in a contractor’s work-in-progress schedule. An experienced underwriter must determine whether those changes reflect a temporary issue, an operational challenge or a deeper concern. AI can help the underwriter spot trends and prompt questions, but experience and judgment are needed to understand what they mean.
Relationships are at the heart of the surety business. Valuable insights come from years of conversations with contractors and agents. Through meetings, site visits and informal interactions, underwriters learn about a company’s leadership, character and credibility—qualities not found on a financial statement.
They see how people communicate, respond to challenges and make decisions as circumstances change. Those observations provide context AI cannot replicate.
The future is not AI versus the underwriter. It is the underwriter using AI to become better, faster and more informed.
AI is a powerful tool. It can help underwriters process more information, identify issues sooner and spend more time focused on what matters most. But the judgment, relationships and accountability behind the final underwriting decision will remain human.
How can CPAs help contractors prepare for bonding as they expand into public or infrastructure work?
Michael B. Ceschini, CPA, CCIFP, CM&AA
Managing Member
Ceschini CPAs Tax & Advisory PLLC
CPAs can help contractors prepare for bonding well before they begin bidding on larger public or infrastructure projects. That starts with making sure financial reporting is appropriate for the level of work being pursued. As bonding needs grow, contractors may need to move from compiled to reviewed or audited financial statements, and planning for that progression early can prevent delays.
Construction-specific financial reporting is equally important. Accurate work-in-progress schedules, backlog reporting, job costing and gross-profit analysis give sureties a clearer picture of performance and help contractors identify problems before they affect bonding capacity.
CPAs can also monitor the balance-sheet measures sureties consider, including working capital, net worth, liquidity and debt. This is particularly important when tax planning and bonding goals compete. A strategy that reduces taxable income or moves cash out of the business may make sense from a tax perspective but weaken the financial position a surety wants to see.
For contractors entering public work, CPAs can also model the cash-flow effects of retainage, prevailing-wage requirements and longer payment cycles before bids are submitted.
Ultimately, bonding readiness should be managed throughout the year. Regular financial reporting, thoughtful tax planning and coordination among the contractor, CPA and surety professional can help position a growing contractor for greater bonding capacity and larger opportunities.
SEE ALSO: EXECUTIVE INSIGHTS 2025: LEADERS IN SURETY BONDING
