An Overview of the Construction Bonding Process in Florida and the Southeast

Construction bonds play a vital role in large construction projects. They protect project owners against issues that contractors may encounter, including sub-par performance and cash flow challenges. In essence, posting a construction bond ensures that a project owner will not suffer financial damages in the event a contractor fails to fulfill their end of the contract.

Small, residential construction projects typically don’t require construction bonds. As construction companies grow more mature and start to focus on larger government and public works projects, however, they are typically required to secure a construction bond before beginning work.

The process of obtaining this bond is driven by several factors, including the track record and financial performance of the construction company. The unique characteristics of the project itself also come into play.

Navigating this process to secure the required bonding capacity is an important inflection point in the growth journey of all construction firms. That’s why, in this article, we’re breaking down exactly what the construction bonding process looks like for construction companies in Florida and the Southeast.

James Moore’s construction accounting professionals have decades of experience providing accounting, assurance, and tax services to a wide range of construction companies across Florida and the Southeast.

Construction Bonds 101: The Basics

If your construction company aims to work on government or public works projects, it’s crucial you understand the bonding process. When working on projects of this nature, your company will likely be required to put up a construction bond for the full value of the contracted work.

Obtaining a construction bond provides assurances to the project owner that your company will fulfill the terms of the contract agreement by offering financial protection in the event your business is unable to meet performance commitments. Construction bonds are underwritten by surety companies. Your construction company will pay a premium to the surety based on the level of risk assigned to your project by underwriters.

Should your business fail mid-project, the surety company you obtained the bond from will step in and ensure the project is completed. Of course, this commitment on the part of the surety means it’s in their interest to bond companies with a proven track record of successfully completing similar projects.

The Construction Bonding Process

There are several different types of construction bonds. For the scope of this article, we’ll discuss two of the most common: bid bonds and performance bonds.

A construction company seeks a bid bond to submit alongside its bid on the project. This bond essentially demonstrates that the construction company can obtain a performance bond if they are selected for the project. It also protects the project owner if a contractor backs out after being awarded the contract for the project.

After the contract has been awarded, the construction company seeks a performance bond (typically from the same surety). This bond protects the project owner from performance issues during the project.

The process of securing sufficient bonding for a project can be markedly different for newer and expanding construction companies compared to the process for more experienced firms. Let’s take at the key stages of the process.

Preparing to Apply for a Construction Bond

If your construction company is relatively new, seeking its first bond, or seeking a major increase in its bonding capacity, obtaining the required bonding may be a relatively heavy lift.

Your first port of call should be to find a reliable bonding agent. This agent will assist you in finding a surety company that is comfortable backing your project. They’ll compile a detailed information package containing information on the construction project and the financial position of your company. The bonding agent will then distribute this to surety companies in their network.

The Underwriting Process

From here, the surety companies’ underwriters will perform their own due diligence. They will scrutinize your company’s reviewed or audited financial statements to understand your fiscal stability and determine credit thresholds. During this process, the surety may ask a series of questions to determine your company’s level of familiarity with the type of work proposed – for example, your experience with similar projects, knowledge of working with the project owner, and your assessment of the risks that may derail the project.

Based on their analysis, the surety company will propose terms and conditions alongside a premium you will pay in exchange for their bonding of the project. Depending on the level of risk the surety determines your company represents, you might be required to sign an indemnity agreement or a personal guarantee before the bond is issued.

Well-established construction companies that frequently work on government and public works contracts tend to have existing relationships and bonding capacities with their surety partners. This level of familiarity and trust makes the process of obtaining a new bond smoother. However, the specific details of each project must still be assessed by underwriters for each new bond.

It’s worth noting that some sureties offer fast-track applications that help construction companies obtain a bond on an accelerated timeline. You should expect to pay an additional premium for this.

During the Project: Providing Regular Updates to the Surety

The majority of construction companies remain in regular contact with their bonding agents, meeting at least once a quarter to discuss the status of open and concluded contracts as well as your company’s financial position. Maintaining up-to-date, accurate construction financial statements on a monthly basis is key in ensuring that your company is agile enough to capitalize on new opportunities.

During the process of a project, a construction company is also expected to provide their surety with regular updates on the status of the project. This includes sharing financial statements as well as supplemental documents such as the work in progress (WIP) schedule.

On larger projects, bonded general contractors may be required to provide their surety with information concerning the performance and bonding status of any subcontractors employed on the project. This information helps assure the surety that the project is progressing as planned.

James Moore: Experienced Construction CPAs to Help You Scale

Ensuring your construction company can get bonded is key to its ability to scale and accept larger, more lucrative projects. The support of a CPA well versed in the complexities of construction accounting is important. It ensures that your business’s financial statements are structured in a way that makes sense to bonding agents and sureties.

At James Moore, our construction CPAs and advisors work with a wide range of construction companies across Florida, the Southeast and beyond. With decades of experience and a stellar reputation, our firm is a trusted name respected by bonding agents and sureties.

With services including outsourced accounting, assurance and tax planning, our team is well equipped to support the needs of both growing and established construction companies. To learn more about how James Moore can support your company, contact us today.

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.