How to Get a Bond for Construction: 7 Key Steps to Secure Your Project

You just spent three weeks preparing the perfect bid for a $2 million municipal project. Your numbers are tight, your team is ready and the project fits your capabilities perfectly. Then you see it buried in the contract requirements: performance and payment bonds required. You’ve never been bonded before, so that project you were counting on? It just slipped away.

This scenario plays out daily across the construction industry. Contractors capable of excellent work lose opportunities because they don’t understand the bonding process. The stakes are high too. Only 35.9% of the 43,000-plus construction businesses started in March of 2011 were still in business by March of 2022 — leaving behind unfinished projects and millions in losses. Bonds exist to protect project owners from these failures, but they also open doors for contractors who can navigate the requirements successfully.

The Federal Acquisition Regulation Part 28 mandates performance bonds for federal construction contracts exceeding $150,000 and payment bonds for projects over $35,000. Most state and local governments follow similar thresholds. Private developers increasingly require bonds for larger commercial work. If you plan to grow your construction business beyond small residential jobs, bonding isn’t optional.

The good news? Getting bonded follows a clear process. Surety companies want to issue bonds to qualified contractors. They make money when you successfully complete projects. Understanding what sureties look for and preparing your application properly puts you in position to secure the bonds you need.

Step 1: Understand Which Bond Type You Need

Construction bonds come in different forms, each serving a specific purpose. Bid bonds guarantee you’ll honor your bid if selected for a project. Performance bonds promise you’ll complete the work according to contract terms. Payment bonds ensure subcontractors and suppliers get paid.

Most contractors need all three types when bidding on significant projects. Federal work requires performance bonds at 100% of contract value for jobs exceeding $150,000. Payment bonds follow the same percentage but apply to contracts above $35,000. State and local requirements vary, so check with the agency issuing your project before applying.

Step 2: Assess Your Financial Position

Surety companies evaluate your company’s financial health before issuing any bond. They look at what’s known as the three Cs: capital, capacity and character. Your working capital tells them whether you can handle cash flow gaps during long projects. Your capacity shows the largest jobs you’ve completed and how much backlog you’ve managed historically. Character comes down to your track record, credit history and reputation in the industry.

Companies with strong balance sheets, consistent profitability and clean credit typically qualify for better rates. Expect to pay between 1% and 3% of the bond amount as your premium, though rates can climb higher if your financials raise concerns.

Step 3: Gather Required Documentation

Getting bonded requires more paperwork than most contractors expect. Start collecting these documents early in your process. You’ll need at least two years of financial statements (preferably CPA-prepared for larger bonds). Personal financial statements from all company owners come next. Your work history matters too, so compile a list of completed projects with values, timelines and references. Business licenses, insurance certificates and tax returns round out the basic package.

For bonds exceeding $500,000, surety companies typically want interim financial statements, current work in progress schedules and detailed job cost breakdowns. The more organized your documentation, the faster your application moves through underwriting.

Step 4: Choose Your Surety Partner

Not all surety companies operate the same way. Some specialize in small contractors just starting out, while others focus on established firms bidding eight-figure contracts. Start by contacting a surety broker who works with multiple companies. They can shop your application to find the best fit for your situation.

For smaller bonds up to $500,000, many sureties offer quick approval programs based primarily on credit scores. These programs streamline the process but come with higher premiums. Larger bonds require full underwriting, which means closer scrutiny of your finances and operations. Building a relationship with one surety company over time often leads to better terms and higher bonding capacity as your business grows.

Step 5: Complete the Bond Application

The application itself asks detailed questions about your company’s structure, ownership, experience and financial position. Answer everything accurately and completely. Inconsistencies or omissions can delay approval or lead to denial. Include explanations for any red flags in your history, such as past project losses, legal issues or credit problems. Underwriters appreciate transparency over surprises discovered during their review.

The underwriting process typically takes one to three days for straightforward applications. Complex situations or larger bond amounts may extend this timeline to several weeks. Stay in contact with your broker and respond quickly to any requests for additional information.

Step 6: Review Terms and Pay Your Premium

Once approved, review your bond terms carefully before signing. Check that the bond amount matches your contract requirements. Verify the effective dates align with your project timeline. Understand any conditions or restrictions the surety placed on your bond. The premium gets calculated as a percentage of the bond amount based on your risk profile. Payment is usually due upfront, though some sureties offer payment plans for annual bonds. Keep copies of all bond documents with your contract files. You’ll need them for project closeout and future bond applications.

Step 7: Maintain Your Bonding Relationship

Getting your first bond is just the beginning. Sureties expect regular financial updates throughout the life of your bonded projects. Submit monthly work in progress reports showing project costs, billings and completion percentages. Communicate proactively about any issues affecting your jobs or finances. Meeting these obligations keeps your bonding capacity available for future work and often leads to better rates over time.

Secure Your Construction Bond with Confidence

Construction bonds open doors to larger, more profitable projects. The application process demands preparation, but contractors who understand the requirements and maintain solid financials find success. Strong accounting systems become essential as your bonding needs grow. Accurate financial reporting, timely WIP schedules and clean books give surety companies the confidence to support your business.

Ready to position your construction company for bonding success? Contact a James Moore professional today. Our construction accounting specialists help contractors build the financial infrastructure needed to secure bonds and grow their businesses.

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.