CONSTRUCTION SURETY BONDS EXPLAINED.
Three bond types cover commercial work. A bid bond guarantees you'll sign the contract at your bid price and typically runs 5 to 10 percent of the bid amount. A performance bond guarantees you finish the job and a payment bond guarantees your suppliers and sub-subcontractors get paid, both typically written at 100 percent of contract value. How much bonded work you can carry at once is set by your working capital, not by how well you know your agent.
Most subcontractors treat bonding as a phone call to an agent. The surety treats it as an underwriting decision off your balance sheet. The single job limit and the aggregate limit both come out of working capital and equity, so the number you can carry is set months before you ask for a bond. That's why the answer at bid time is rarely negotiable. If you want more capacity next year, the work is keeping profit in the company this year and reporting it in a format the underwriter trusts.
WHAT IT MEANS.
A surety bond is a guarantee from a third party that you'll finish the contract and pay your suppliers, and that the surety will cover the owner's loss if you don't.
Bonding requirements are a fact of life in commercial construction, and they get stricter on public projects and on larger private commercial work. Most subcontractors know they need bonds, and far fewer can say what each type covers, what it costs the business, or how their bonding capacity caps the volume of work they can take on.
The three types do different jobs and get issued at different points in the project. The capacity number sitting behind all of them is a balance sheet calculation, which means it responds to how you run the company and not to how badly you want the job.
WHERE BONDING COSTS YOU WORK.
You're losing work because you can't get bonded
A GC requires a performance and payment bond on a project you want to win. You call your agent and find out that either you have no bonding program established or your aggregate capacity is already maxed out. The opportunity goes to a bonded competitor. Most subcontractors never build the bonding program ahead of time, so they find the limit at the worst possible moment.
You don't know what your aggregate bonding limit is
Your surety sets a single job limit and an aggregate bonded work limit, which is the most total value of bonded contracts you can have outstanding at one time. Most subcontractors can't state either number until they sit down to apply for a specific bond. By then there's no time left to improve the financial ratios that drive both limits.
Your financials aren't formatted for surety review
Sureties evaluate working capital, current ratio, equity position, the WIP schedule, and backlog. Most subcontractors send their surety a tax return or an informally assembled financial statement instead of the construction specific package a surety needs to judge capacity correctly. The underwriter then fills the holes with caution, and caution comes back as a lower limit.
WHAT IT LOOKS LIKE IN DOLLARS.
Sureties use working capital as the primary driver, typically allowing $10 to $15 of aggregate bonded work per $1 of working capital. A contractor with $500K of working capital typically supports $5M to $7.5M in aggregate bonded work. Growing the bonding program means growing working capital, which means keeping earnings in the business instead of distributing them.
WHAT WE CHANGE.
A bid bond guarantees you'll execute the contract at your bid price if you're selected, and it typically runs 5 to 10 percent of the bid amount. A performance bond guarantees you'll complete the project according to the contract terms, and a payment bond guarantees you'll pay your suppliers and sub-subcontractors, both typically written at 100 percent of contract value. Performance and payment bonds are almost always issued together, while bid bonds are issued separately at bid time.
Because working capital is the primary driver of capacity, the bonding program grows only when the balance sheet grows. SPM manages working capital with bonding capacity goals in view for every client, so the distribution decision in a good year gets weighed against the capacity you want next year. Retained earnings are the only source of new capacity, and that makes capacity a decision rather than an accident.
SPM keeps the financial package a surety needs current all year: clean financial statements, a monthly WIP schedule reconciled to the balance sheet, an AR aging, and a backlog summary. When a bonding application or a renewal calls for financial documentation, it goes out immediately instead of starting a scramble. Underwriters price certainty, and a package that comes in complete and on time is worth capacity on its own.
THE OUTPUTS, NAMED.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
FREQUENTLY ASKED.
