Ben Mathews
- Apr 18, 2018
- 5 min read

#2 – Now How Do I Get A Bond?

Hello, everyone! Welcome back to Ben’s Bond Blog. Hopefully my first post proved to be useful for you in one way or another (or at least taught you something you didn’t know) and you’ve come back to venture one step further into the world of bonding. If you haven’t yet seen my first post, be sure to check it out, it will provide you with a good foundation as we move forward through different, more advanced topics over time.

The goal of these posts are to inform you, the readers, whether you are a general contractor, service contractor, subcontractor, bond/insurance agent (or anyone else who is interested in surety for that matter) and provide the base knowledge necessary to navigate through this sometimes tricky and overwhelming industry. I hope that these posts will cover most everything you would need to know, however I am sure that along the way this information will lead to questions I did not even consider. When that inevitably happens, I encourage you to reach out to me as I would be more than happy to clear up anything I may have missed. My contact information is below:

Ben Mathews

ben@constructionunderwritersllc.com

Direct: (410) 910-0204

Last time we went over at the most basic level what a bond really is, why they’re important for owners and contractors (both general contractors and subcontractors), as well as covering some terms that I am going to be throwing out left and right – hope you read all the way to the end! All this is great to know, but what good does this information do if you don’t even have the slightest idea of how to go about obtaining a bond, which is exactly what I am going to be going over today.

In an ideal world, this would a very straightforward answer, but I guess in that case people like me wouldn’t need to write blog posts about it. In reality, the answer is “it depends”. Getting payment and performance bonds for a multi-million dollar HVAC subcontract is worlds different than getting a small, fifteen thousand dollar license and permit bond to operate a motor vehicle dealership, but then again, in some ways it is surprisingly similar. Different surety companies have different underwriting philosophies, and while they all look at a long list of factors that are commonly referred to as the “three C’s” – Character, Capacity, and Capital (more on these later), each company will weigh these factors differently. This is where the agent comes in.

Contractor – Agent – Surety Relationship

Before I begin to discuss the oh-so-important role of the agent in facilitating the bonding process, let me be clear that I am a surety agent and, due to that fact, may be slightly biased, but I will do my best to be objective here.

The job of the agent is to provide guidance and advice for the client to get them the support of a surety. As is often the case with a lot of insurance agents, they will represent several different sureties for the reason mentioned above, it provides them with a variety of different fits for different clients, giving both the agent and client the best chance for success. The surety agent is able to not only advise the client on what they need to do to grow, but they can pair them with the surety that will be most conducive to making that happen by supporting them with bonds as they need them.

The first step is for a contractor to make contact with an agent and ask them to get a bond. The agent will collect various information from the client and then will go to a surety to see if they would be willing to support the client, and under what conditions.

There can be some back and forth during this period as the surety is going be underwriting to get the best picture of what is going on with the contractor in an attempt to feel as comfortable as possible. Once they get to this point, the three parties will agree on a bond “program” or “line” with a single and an aggregate value. For example, this could look like $1M single/$3M aggregate. The single value is the guideline for the largest job the surety will support ($1M) and the aggregate value is the guideline for the total amount of work the surety feels comfortable with the contractor handling at any given time ($3M). This is based on the underwriting at one point in time and a client’s bond program can change as they grow and gain experience.

So What Exactly Do I Need?

Every case differs, but the table below gives a general idea of what types of information would be required for different levels of bonding:

This does not mean that the above listed information required will always be sufficient, the content of the information below can bring up red flags or seal the deal in getting a bond, depending on the situation. The three C’s are made up of many factors, some hard numbers and some more subjective traits and judgement calls that are pulled from the content of these documents.

Character:

Good credit – rating, bill paying habits, supplier/lender references.
Prior job performance – whether or not they will honor the obligation of the bond.
Quality of information submitted – thrown together last minute vs uniform and timely.

Capacity:

Analyzed financial support.
Management/key employee skills and experience.
Plant and equipment capability.

Capital:

Working capital – current assets less current liabilities (with some modifications).
Net worth (equity).
Bank support – in the form of a line of credit.

The Bottom Line

Unfortunately (but also fortunately) there isn’t really an ideal or perfect picture that sureties are looking for when they are underwriting a new account. If you look at it glass half empty, you could say that this makes it difficult for the contractor and the agent. You can’t point to one specific thing and decide to focus solely on improving that to guarantee that you will be able to get bonds. Maybe I am too optimistic, but I like to look at it in the opposite way – if you are realistic, there is almost always a way for all three parties to work together to come to a mutually beneficial program that will allow the contractor to grow and take on the work they need while the surety is at a point where they feel comfortable providing that support. Ultimately, this all comes down to good management. If a contractor is able to show that they have had success in the past performing similar work and have the wherewithal financially and operationally to keep doing so, they will get the bonds they need.

For any questions/concerns, please contact: