Date Published: October 11, 2021

Have a look behind the curtain. Ever wonder about the performance bond underwriting guidelines of qualifying for performance and payment bonds? You are a construction contractor, the surety underwriters are not people with a construction back ground yet they are the ones trying to pre-qualify you. So what are the sureties looking for? Below is an actual new account narrative outline from an actual surety. This is a typical template the local underwriters are expected to use when submitting a construction contractor account to the home office for approval.


  • What type of account (GC, Subcontractor, Heavy Contractor, Civil, Other)
  • Estimated annual gross premiums from the account
  • Work program requesting (single and aggregate credit line)

Source/ Prior Surety

  • Existing, new or targeted insurance agency Performance Bond Underwriting Guidelines
  • Do we have existing business with the agent? and how much premium?
  • What is the producer’s relationship with the account?
  • Who is the current surety? Prior history of claims, disputes or derogatory issues?
  • Why are we getting an opportunity? Evaluation of the nature of conflict with existing surety and/or agent

Contractor History 

  • When did the account organize? Incorporate?
  • C-Corporation, S-Corporation, Limited Corporation or Partnership?
  • Ownership of the contractor
  • Subsidiaries & Affiliates (an organizational chart is helpful)
  • Geographic Radius, Territory of
  • Percent of work done for public owners vs for private owners
  • Percent of work done as a prime contractor vs. subcontractor
  • Percentage of work program that is expected to be bonded.
  • What is the subcontracting policy of the company? Prequalification & selection decisions? Any history of subcontractor defaults?
  • Duration of most jobs
  • Size range of most jobs
  • Discuss and evaluate any recent changes in the nature, size or scope of What successes or problems have come from these changes?

Completed Job History

  • List at least the 3 largest completed jobs reflecting final contract price, final gross profit margin, job description and year completed.
  • Are there any specific relationships / continuity with various owners, architects, engineers, where contractor may have a competitive advantage?
  • If largest job is still in progress but nearing completion, discuss the job
  • Evaluate any large job losses incurred by the Lessons learned?
  • Are there any recurring patterns of job losses from similar occurrences?

Management (organizational chart)

  • Identify key management with ownership %, age, tenure with company, education
  • Resumes of key management should be in file
  • Responsibility for key disciplines of Estimating, Project Management, Field Operations, Contract Review and Negotiation, Internal & Administration personnel
  • Discuss any recent changes in primary management team and key employee positions, and evaluate the potential impact of thes


  • Is there a formal continuity plan in place for transfer of ownership? (copy)
  • Is there life insurance in place? Beneficiary of life insurance?
  • Management agreement in place? Employment agreements with critical people?
  • Any pending ownership changes being considered by the contractor?
  • Evaluate the plan and comment on its adequacy in relationship to the size of the

Business Plan – Performance Bond Underwriting Guidelines

  • Formal written plan and fiscal budget in place? (copy)
  • Anticipated annual sales / growth expectations for the next few years
  • Evaluation of current capacity for work program – project size, number of jobs, aggregate program,
  • Key Personnel additions required to execute the business plan?
  • Equipment requirements?
  • Forecast for margins
  • Upcoming larger projects / anticipated backlog spikes


  • Bank line in place? How much? Secured? (if so, by what?), expiration of line, financial covenants, personal guarantees offered to the bank?
  • Phone reference with bank lender (duration of relationship, satisfaction with the account, line extension and terms, and future outlook on the relationship)

D&B Rating

  • Date, rating, paydex, pay record, liens, lawsuits


  • Full principal indemnity 
  • Personal indemnity (limited or full), spousal indemnity?
  • If personal indemnity in place – does the personal indemnity add monetary support (latest personal financial statement – evaluation of personal financial circumstance liquidity, other investments, net worth, etc)
  • Affiliated companies. 3rd Party Indemnity? Are the affiliates a supporting or detracting component of the account, overall?
  • Discuss any subordination, capital retention, or collateral agreements and assess the impact on the program being


  • CPA – how long used the firm, construction oriented CPA?
  • AICPA standards compliant?
  • Financial and tax reporting (percentage of completion, completed contract method, etc)
  • Internal cost and accounting systems — discuss and evaluate for quality
    • Computer systems – hardware and software components?
    • Who is in charge of the internal financial controls and reporting?
    • Frequency & quality of internal interim financial statements, WIP, and CC schedules?
    • Project Management controls (regular PM meetings, actual budgeted cost evaluation, procedures for change order work and accounting functions, owners involved in site visits, etc)

Balance Sheet Analysis

  • Most recent fiscal and most recent interim (if interim is subsequent to fiscal)
  • Analyzed working capital and net worth
  • Cite adjustments to both measures
  • Adjustments required in consideration of taxes (Non C-Corporation accounts)
  • Recap asset and liability composition (ie. Cash, AR’s I AP’s, over-billings, etc)
  • Trends of balance sheet composition
  • Assessment and evaluation on the quality of assets and leverage support within the company (accounts receivable, claims receivable, secondary asset investments, use of the working capital line, payables receivables balances).

Income Statement

  • Most recent :fiscal and most recent interim (if interim is subsequent to fiscal)
  • Sales / margins /overhead/ operating profit/ net income
  • Evaluate dividends / distributions and evaluate company policies for profit retention?
  • Trends of the above
  • Review and evaluate key components and transactions within cash flow schedlJ}e.


  • Current ratio, debt/worth ratio, over ratios, assets to liabilities matchup, profitability and overhead margins.
  • A chart reflecting these measures over the last several years is recommended

Work on Hand

  • Most recent fiscal and most recent interim (if interim is subsequent to fiscal)
  • Cost to complete from uncompleted jobs; gross margin from uncompleted jobs; remaining gross profit margin on uncompleted jobs
  • Analyze remaining gross profits from WIP against overhead and operating cost
  • Completed contract gross margin
  • How many jobs are reflecting losses (explain largest)
  • Underbillings– balance in relation to working capital and net worth, explain larger underbilled Review subsequent billings summary of unbilled costs.
  • Overbillings – how much
  • Job borrow – how much; compare to cash balance
  • Job Profit comparison – trends? Are profit fades preceded by underbillings? Evaluate the potential trend of current underbillings forward / impact on
  • Current estimated cost to complete

Risk Evaluation of the Account / Compliance with Performance Bond Underwriting Guidelines

From the information and assessments in the presentation, clarify the underwriter’s risk evaluation of the account. These comments will focus on the strengths and weaknesses of the contractor, in relation to the credit being considered and recommended.

Mitigating factors to the risk elements should be proposed, and expectations of future performance and compliance with underwriting requirements should be clearly identified.


  • Single and aggregate program
  • Rate / Commission / Dividend (if applicable)
  • Final comments and

An agent that understands these Performance Bond Underwriting Guidelines can be a big help in preparing a contractor to seek a new surety relationship. Surety1 has been a surety bond only agency since 2003. To get started, visit our performance bond page today. We look forward to serving you.

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