Bonding Construction Work: What You Need to Get Started

Picture this: You’ve put together the perfect proposal, your pricing is tight, and your team is ready. But the project requires bonding and you’re not eligible.

Bonding has become a must-have in both public and private construction. If your firm wants to compete for government contracts, commercial builds or infrastructure work, you’ll need to provide surety bonds that prove you can deliver. Without one, even years of successful projects won’t be enough.

Bonding protects the project owner. If your company defaults or fails to pay subcontractors or suppliers, the bond ensures those obligations are met. That protection brings peace of mind for owners but demands a deeper level of financial scrutiny for you.

According to the Surety & Fidelity Association of America, projects backed by surety bonds are 10 times less likely to experience contractor default than those without bonding. That statistic explains why bonding has become the standard on higher-value work.

Here are the three main types of construction bonds:

• Bid bond: Guarantees that you’ll enter the contract and provide performance and payment bonds if awarded the job.
• Performance bond: Ensures you’ll complete the project based on the contract terms.
• Payment bond. Protects subcontractors and suppliers by guaranteeing payment, even if your business faces financial hardship.

Requirements vary by project, but all bonding requests have one thing in common: Your company’s financial picture must be clean, consistent and credible. That starts with understanding what bonding companies actually look for before issuing approval.

 

 

What sureties look for before issuing a bond

Surety providers want to know how your business performs, how stable your financials are and whether you have the infrastructure to manage risk. Can you do the job, and what happens if something goes wrong?

Here’s what they examine:

Financial strength. Most sureties require CPA-reviewed or audited financial statements (compiled financials often fall short). They also review your working capital, equity and key ratios like the current ratio and debt-to-equity.

Project history. Bonding agents review your completed jobs, backlog and experience handling similar scopes. They want to see that you’ve managed projects of comparable size, complexity and duration.

Job costing systems. Poor internal controls and inaccurate job costing are red flags. Sureties want to see reliable WIP schedules, timely billing and strong tracking of costs to date versus projected.

Character and reputation. Yes, they look at the numbers. But they also pay attention to how you run your business. Good communication, consistent project closeouts and responsiveness go a long way.

Relationships. Sureties work closely with CPAs and construction advisors. A contractor who works with an experienced industry CPA brings credibility and clarity to the bonding process.

Want more support preparing your financials for bonding? Explore how James Moore’s Construction Accounting Services help contractors across the Southeast build a bond-worthy foundation.

Financial statement readiness is key

Bonding agents aren’t just looking at your top-line revenue. They’re reviewing how your financial statements are prepared, how often they’re updated and what they reveal about your ability to manage risk and deliver results.

For most contractors pursuing bonded work, a basic compiled financial statement won’t cut it. Surety underwriters often require reviewed or audited statements that show a full picture of your financial position. That includes a detailed work in progress (WIP) schedule, accounts receivable and payable aging reports, and evidence of job profitability.

Your WIP schedule in particular is one of the most important documents you will submit. It tells the bonding company whether your jobs are profitable, how timely you bill and how well you manage cost overruns or delays. A well-prepared WIP schedule also helps the surety determine whether you are in control of your backlog and future obligations.

Another key component is liquidity. Surety providers want to see healthy working capital and a current ratio of at least 1.25 to 1. In other words, you need to show that your business can meet short-term obligations without stress. This also includes managing underbillings and overbillings. Frequent underbilling may signal cash flow issues or poor project controls.

The “Three Cs” of bonding still apply. These are capital, capacity and character. And financial statements touch all three. They reflect your capital position, help gauge your capacity to take on additional work and demonstrate the character of your financial management.

Common bonding hurdles and how to overcome them

Even experienced contractors can face bonding challenges. Most issues stem from gaps in financial reporting or weak operational processes. The good news is that many of these hurdles can be corrected with the right accounting support and proactive planning.

Here are the most common red flags that slow down or limit bonding capacity:

Outdated or incomplete financials. If your statements aren’t current or your books are months behind, it sends a message that your business may not be ready to take on new work. Bonding companies rely on recent, accurate data to assess risk.

Unclear WIP schedules. A missing or overly simplified WIP schedule is another common problem. If it doesn’t show cost-to-complete data, billings to date or gross profit adjustments, your bonding agent cannot evaluate your financial performance.

Excessive underbilling. This often signals that you’re doing the work but not billing for it. Over time, that can put pressure on cash flow and raise concerns about job profitability.

AR issues. A high percentage of accounts receivable over 90 days may indicate collection problems. Sureties want to see that you manage receivables tightly and follow up on unpaid balances.

Weak internal controls. If your processes for job costing, change order tracking or subcontractor documentation are informal or inconsistent, that adds risk from the surety’s perspective.

One way to overcome these issues is by working with a CPA who understands the construction industry. At James Moore, we help firms tighten up their reporting, implement job costing systems that actually work, and create consistent documentation that supports bonding confidence.

 

 

Getting bond-ready: A checklist for construction firms

Sureties don’t hand out bonds based on potential. They want proof of readiness. Whether you’re seeking your first bond or trying to increase your bonding limit, preparation is everything.

Use this checklist to assess how bond-ready your construction business really is:

1. Proper legal structure.

Your business entity must be in good standing and appropriately structured. LLCs and corporations should have updated filings with the state, clearly defined ownership and all required licenses active.

2. CPA-reviewed financial statements.

At a minimum, you should provide reviewed statements prepared by a CPA who specializes in construction. These statements need to include a detailed WIP schedule, backlog reporting and aging reports for receivables and payables.

3. Clean job costing systems.

You should be able to show job-level profitability, track change orders in real time and identify cost overruns before they spiral. If you rely on spreadsheets and memory instead of systems and reports, bonding companies will notice.

4. Up-to-date insurance and compliance documents.

Many projects require proof of general liability, workers’ comp and other coverage. Bonding agents will also look at licensing and state compliance, especially for contractors working across jurisdictions.

5. Strong banking relationships.

Your banking history supports your credibility. Sureties often ask for a letter from your banker confirming lines of credit, account history and whether you are in good standing.

6. Prequalification with a reputable surety.

Start building a relationship before you need the bond. Work with a surety agent who understands your business size and industry. A good agent will help you match with the right carrier and walk you through their application requirements.

7. Tax compliance.

Be current on all federal, state and payroll tax obligations. A surety will flag any open tax liens or unresolved IRS issues. If you’ve had past issues, be transparent and show documentation that steps have been taken to resolve them.

To go deeper on industry guidance, visit the IRS’s page on Industries, Professions and Business Tax Centers. While not specific to construction, this hub includes valuable resources for navigating contract rules, employment taxes, and accounting methods.

Working with a CPA who knows construction

Not all CPAs are built the same. When it comes to bonding, the difference between a generalist accountant and a construction-focused CPA can directly impact your ability to win work. Surety companies look for clean financials, accurate job costing and clear indicators of control. A CPA with construction expertise knows how to deliver that.

At James Moore, we’ve spent decades working with construction firms across the Southeast. That experience has taught us that bonding is about presenting your business as a reliable partner who understands risk and manages it well.

Here is how working with a construction-focused CPA helps improve bonding success:

Better financial presentation

We prepare reviewed or audited financials that meet surety expectations. This includes detailed WIP schedules, updated backlog, accurate gross profit tracking and disclosures that support your stability.

Stronger internal systems

We help clients implement or improve job costing systems so they can easily track real-time costs, identify problem areas and demonstrate control over large and complex jobs.

Credibility with sureties

Surety companies trust financials prepared by CPAs who understand construction. We often coordinate directly with surety agents to provide additional analysis, clarify unusual items or respond quickly to bonding requests.

Strategic planning

If you’re trying to grow your bonding capacity, we work with you and your surety agent to develop a plan. That may include improving liquidity ratios, restructuring debt or adjusting billing practices to reduce underbilling.

Year-round support

Bonding isn’t a once-a-year conversation. We help our clients prepare interim statements, assess cash flow impact before bidding a large job, and provide timely projections when applying for increased bonding limits.

One of the most important things we do is listen. Because the better we understand your business, the better we can position your financials to tell your story.

Build bigger, smarter and more secure with bonding

Bonding is more than a compliance requirement. It helps construction companies scale, protect their work and compete for larger and more profitable contracts. But qualifying for bonded work requires accurate financials, proven internal controls and the right professional guidance.

At James Moore, we help construction firms become bond ready, stay compliant, and grow strategically. We understand what surety providers want to see, and we know how to present your financial strength in a way that builds confidence.

Let us help you get ready for what’s next.

Contact our team today to learn how James Moore’s construction CPAs can support your bonding goals and overall financial success.

 

 

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.