A surety turned down a file. Find out whether the problem was the file or the numbers.
Bonding is underwritten like credit, not like insurance. A decline can be about what the surety could see rather than about whether the work can be done. That is a harder thing to hear and a much better thing to know, because a file can be fixed.
Build the bond file The short answerThe financial statements, and how current they are
Work on hand against capacity, and the track record on that kind of job
A gap they have to guess at, or a surprise found late
Why do contractors get declined for a bid bond?
Look for one of five things: not enough working capital to carry the job, financial statements that are old or internally prepared, too much work already on hand for the capacity being asked for, no track record on that size or type of project, or a submission with holes in it. Only the first four are about the business. The fifth is about the paperwork.
Sureties are not pricing the chance of a fire. They are deciding whether this company can finish this contract if things go badly, and then whether the owners could make good on it if the company could not. That is a credit question. It gets answered from statements, work on hand, history and the people behind the company, roughly in that order.
Without capacity you cannot bid on bonded work. The tender closes, the work goes to someone else, and the reason sits in a file nobody explained to you. The Surety Association of Canada describes what the underwriter is reading when they open your file. Of the balance sheet it says: “This helps the surety company assess the working capital and overall financial condition of your company.” Start there. Read the Surety Association’s tips for contractors (opens in a new tab).
One is worth arguing with. One is not.
The fixable no
Statements are internal or a year old. Work on hand was never set out clearly. The trade history that proves you can do this job was in someone’s head instead of in the file. All of that is presentation, and presentation can be repaired. How fast depends on how quickly the statements and the schedule can be produced.
The structural no
Working capital genuinely will not carry the contract, or the balance sheet is upside down. No amount of presentation fixes that. What a broker can do is say so early, and work on what would change it before the next tender.
The three numbers a surety starts from.
Working capital
Liquid assets against current liabilities. It answers the first question a surety asks: can this company pay for materials and labour on this job while still paying for everything else it already promised.
Work on hand
Everything already under contract, added up honestly. New capacity is granted against what is left, not against what the company could theoretically manage. Understating it does not help, because it comes out later and then the file has a credibility problem as well.
Who stands behind it
The surety can also ask the owners, and sometimes their spouses, to indemnify personally. That makes the owners’ own financial position part of the assessment, and it is better known early than discovered at signing.
What contractors ask us about this.
We were declined once. Are we finished with surety?
No. A decline can be about the file rather than the company. What matters is what changed since. A decline that was answered with better statements and a clear work-on-hand schedule reads very differently a year later.
Our statements are internal. Is that fatal?
Not fatal, but the Surety Association of Canada says that, in general, sureties do not accept statements prepared by your own staff or compilation statements, that they prefer audited statements, and that some will take a review engagement. If bonding is part of the plan for next year, that is the thing to arrange with your accountant now.
The tender closes in a week. Is that enough time?
It can be, if the file is complete and the surety can get to it in time. The surety cannot start until the statements are in, and a week spent chasing statements that do not exist yet is not enough. The clock is the reason to start before you need the bond, not after.
We have a facility already but it is too small. What now?
Increasing an existing facility is a different conversation from starting one, and can be an easier one. It usually turns on the same three numbers, plus how the last few jobs actually finished.
Does a bond protect us if a subtrade fails?
A bond you require from a subtrade can. A bond you give to an owner protects the owner, not you. The two are easy to mix up, and the difference decides who is left carrying an unfinished scope.
Two the same paperwork usually raises: clearance letter or certificate of insurance and the conditions inside a builders risk policy.
Not the question you had? Build the bond file and set out your own situation in plain words. A licensed broker reads it and replies in writing.
Tell us what happened, and what the surety said.
We will tell you whether it is the file or the numbers, and what would have to change before the next tender.