A bond is not insurance, and confusing the two costs contractors work.
Insurance protects you. A bond protects the person who hired you, and if the surety pays out, it comes back to you. Understanding that difference is the whole of this page, and it is why bonding is underwritten like credit rather than like insurance.
Ask about bonding The three bondsBid, performance, labour and material, and maintenance bonds
Contractors bidding public work or larger private projects
Your most recent financial statements and what you are bidding
What is the difference between a surety bond and insurance?
Insurance is a two-party contract where the insurer accepts a risk in exchange for a premium, and pays your losses. A surety bond is a three-party guarantee: the surety promises the project owner that you will perform, and if you do not, the surety pays the owner and then seeks repayment from you. That is why bonding capacity is assessed on your financial statements, your work on hand and your track record. It is closer to a credit line than to an insurance policy.
Without bonding capacity you cannot bid the work at all. Public and larger private projects are closed to you, and by the time you discover that, the tender has usually closed too.
The bonds a contractor actually meets.
Bid bond
Guarantees that if you win the tender you will enter the contract at the price you bid. Usually required to bid at all on public work.
Performance bond
Guarantees the project gets finished if you cannot finish it. Commonly fifty percent of the contract value.
Labour & material payment bond
Guarantees your subcontractors and suppliers get paid. Frequently issued alongside the performance bond.
Maintenance and warranty bonds
Cover defects appearing for a period after completion.
Licence and permit bonds
Required by some authorities before a licence is issued or work begins on public property.
Consent of surety
The document confirming a surety will bond the project, often needed before an owner will award it.
What a surety will want to see.
Bonding is granted on your business, not on the job. Getting this material in order is most of the work, and it is worth doing before you need it.
Financial statements
Reviewed or audited, prepared by an accountant who understands construction. Working capital and equity drive your capacity.
Work on hand
What you have under contract, how far along it is, and what it is worth. Sureties watch how much you are carrying at once.
Track record and people
Completed projects of similar size and type, and the experience of the people who will run this one.
A situation we see.
A municipal tender closes in ten days and asks for a consent of surety with the bid. Without a surety relationship already in place, the paperwork alone will not be ready. The contractors who win these started the conversation a year earlier.
Bonding capacity is built over years, not arranged in a week.
So the honest advice is to start before you need it.
The contractors who get bonded easily are the ones who set up proper financial statements early, kept working capital healthy, and built a relationship with a surety before the big tender appeared. The ones who struggle are the ones who phone the week a public project closes.
If you are heading toward work that will need bonding, tell us now. Even if the answer today is “not yet”, knowing what has to change, and in what order, is worth more than a scramble later.
Surety is a specialist field. We will tell you honestly what we can arrange, and where a dedicated surety specialist is the right answer, we will say that too rather than take three weeks to reach the same conclusion.
What contractors ask us about bonds.
Is a surety bond the same as insurance?
No. Insurance pays your losses. A bond guarantees your performance to someone else, and if the surety pays a claim it seeks repayment from you. They are different products with different underwriting.
Why do I need a bond as well as liability insurance?
They answer different questions. Liability covers damage or injury you cause. A bond answers what happens to the project if you cannot complete it. Public and larger private owners typically require both.
How much does a performance bond cost?
It is priced as a percentage of the contract value and depends heavily on your financial strength and history. Stronger financials mean better rates and more capacity, which is why the accounting work pays for itself.
Can a new contractor get bonded?
Sometimes, at smaller limits, with clean financials and often personal indemnity from the owners. Capacity grows as your track record and balance sheet do.
What is bonding capacity?
The total value of bonded work a surety will support at one time, and the largest single project within it. Both are reviewed as your financial statements change.
I have been asked for a consent of surety to bid. What is that?
A letter confirming a surety is prepared to bond the project if you win it. Owners ask for it before awarding, so it needs arranging as part of preparing the bid rather than afterwards.
Planning for work that needs bonding?
Tell us what you are bidding, and send your most recent financial statements. We will tell you where you stand.