Surety bonds sit at the intersection of trust, cash flow, and reputation. For contractors, they are more than a line item tucked into bid paperwork. A bond can decide whether you get a job, how your subs treat you, and how an owner sleeps at night. Missteps with bonding rarely explode on day one. They creep along the edges of a project, show up in the middle of a pay app, or hit hard when a schedule slips and a supplier goes quiet. Having spent years working with both contractors and underwriters, I have seen the same patterns repeat. The contractors who understand how sureties think, and how bond terms actually operate in the field, put themselves in a stronger position to win and finish work.
This piece unpacks the most common mistakes contractors make with surety bonds and what to do instead. It blends underwriting logic with jobsite reality. The through line is simple: treat your surety as a partner, not a commodity, and build habits that reduce surprise.
Treating bonds as a pure commodity purchase
Chasing the lowest premium every time is tempting, especially when margins are thin. But a surety bond is not like fuel or rebar. You are buying a promise that depends on the surety’s assessment of your company and their willingness to stand with you when a project takes a turn. Switching markets repeatedly to shave a tenth of a percent off the rate can backfire.
Underwriters track consistency. If you hop carriers every bid season, they will question why. When the cycle tightens and capacity shrinks, you want a surety with history on your side. I have watched solid firms get caught flat footed when a budget surety pulled back midyear, forcing emergency placements at higher rates and with restrictive terms. The price you saved on the front end is nothing compared to the premium you pay in flexibility when you need it.
A better approach is to build a relationship with a reputable surety that understands your size, trades, and risk profile. Share your backlog strategy, the types of owners you prefer, and where you see the business going. Over time, you will get better terms, faster responses, and a sounding board when you consider a stretch project.
Ignoring how underwriters read your financials
Many contractors think the audit or tax return is the finish line. For underwriters, it is the starting point. They do not just look at revenue and profit. They break down working capital, quality of receivables, underbillings, overbillings, and how much cash is tied up in claims or related-party transactions. What trips up a lot of teams is not bad performance, but unclear information.
Place special attention on work-in-progress schedules. Underwriters scrutinize the percentage-of-completion (POC) method and how it ties to your general ledger. Large underbillings can signal margin fade or a slow owner, both of which raise eyebrows. Big overbillings look great for cash but may mask future job costs that will eat margin. A clean WIP, reconciled to the financials, with notes on any outsized items, builds credibility.
Timeliness matters too. Audited or reviewed statements within 90 to 120 days of year-end set you apart. If you run on internally prepared statements for part of the year, keep them consistent in format and include WIP detail. When the numbers slide across the desk in a way that matches how sureties analyze risk, you gain capacity. When they arrive late, incomplete, or hard to parse, your bond line stalls, just as the right bid package lands.
Treating the indemnity agreement like boilerplate
The general indemnity agreement, or GIA, is the engine under the hood. Too many contractors sign it once and then forget it. A GIA is not a suggestion. If the surety pays a claim, they will come to you, your company, and, often, personal or affiliated entities for reimbursement. The surety’s duty runs to the obligee, not to you, and they hold substantial discretion in claims handling under the agreement.
I have seen owners shocked to learn that a personal home or a sister company’s assets are exposed after a default. They had signed cross-corporate indemnity language years before and never revisited it. If you have grown from a small shop into a mid-market contractor, sit down with your broker and attorney to review your GIA. There are times when a surety will remove affiliates that no longer make sense or adjust spousal signatures if the risk profile has improved. You will not get every concession, but you can often make the agreement reflect your current reality.
Understand collateral provisions as well. When a surety senses mounting risk, they can demand funds be placed in trust. That is not a moment to learn what you promised. Planning for that scenario, even if it never happens, changes how you manage excess cash.
Bidding outside your historical lane without a narrative
Underwriters do not expect you to do the same job forever. They do expect a plan. When contractors jump from $2 million site packages to a $12 million municipal project, or from wood framing to heavy structural steel, they run into resistance. Not because they cannot do it, but because the surety cannot see it.
Stretching into new scopes or larger contracts is fine if you connect the dots. Your project managers’ resumes, your superintendent assignments, the sub lineup, the scheduling tools, the safety plan, and your cash buffer all tell a story. So do letters from vendors and subs willing to back your move. A one-page cover with your bid request that explains your approach can unlock approvals. Without that context, many sureties default to a conservative answer at the worst time, such as hours before a bid.
Overreliance on pass-through subs without controls
Some general contractors build a model around thin in-house staff and heavy use of subs. It can work well, but underwriters get nervous when most of the scope sits with a few lightly vetted trade partners, particularly on public work. Your bond backs performance and payment across the project, not just your PM’s notebook.
Show your surety how you prequalify subs. Insurance limits, backlog checks, EMR trends, and references should not be afterthoughts. If you hand a $5 million electrical package to a shop that has only closed a $1 million job and sits on shaky credit, you are borrowing trouble. On the back end, enforce lien waivers, joint check agreements if needed, and pay-when-paid clauses that comply with your state’s rules. Good subs will not balk at structure. They recognize that discipline keeps everyone whole.
Letting cash flow drive schedule decisions
Owners notice when crews thin out or deliveries slow. So do sureties. I have sat in too many job meetings where a superintendent says, “We will be back to full strength once the next pay app clears.” That signals a working capital pinch, and underwriters read it as a leading indicator of problems.
Healthy contractors build a cushion that lets the schedule dictate cash, not the other way around. Aim for at least two to three months of fixed overhead in accessible cash or a revolver with room. On bonded jobs, many sureties prefer to see working capital equal to 5 to 10 percent of your bonded backlog, though the right number depends on the trade and risk mix. You can run leaner if your margins are strong and your billing is disciplined, but be ready to explain how you bridge gaps when owners push back on change orders or hold retention longer than expected.
Weak change order discipline
Change orders are profit or pain depending on timing. The habitual mistake is to proceed with changed work on a handshake, then spend months chasing paperwork. Underwriters look for written directives and documented pricing before substantial extra work starts. When they see large open change logs with old dates, they assume your profit is eroding.
Train Axcess Surety bond rates your PMs to get at least a time and material ticket signed daily if formal approval lags. Push for interim approvals on scope chunks rather than a single omnibus change at 70 percent complete. Track markups clearly and tie them to your contract terms. If you have to move forward without full sign-off to protect the schedule, memorialize that in a field directive from the owner’s rep. Clean documentation keeps revenue aligned with cost, which keeps your bonding line comfortable.
Misunderstanding bond forms and their traps
Not all bond forms are equal. Owners and agencies sometimes draft forms that expand your liability or restrict defenses. Two clauses commonly create heartburn. First, notice and opportunity to cure. If the form shortens deadlines or allows the obligee to declare default without giving you or the surety a chance to respond, you carry more risk. Second, waiver of defenses and pay-on-demand language. Some obligees push terms that require the surety to pay first and sort it out later. Your indemnity brings that pain back to you.
Do not let bond forms slide through legal review just because they came from a public agency. Ask your broker to compare them to standard AIA or ConsensusDocs forms. If the owner will not budge, factor the extra risk into your bid or pass. I have seen contractors accept harsh bond forms to win a marquee job, only to spend months in claims rows arguing technicalities they had already signed away.
Delaying bad news to the surety
Contractors sometimes treat their surety like a last-resort creditor. They call only after a default letter lands. By then, options are limited. The most successful teams share early signals: a key sub goes under, an owner stops returning calls, or a schedule busts due to hidden conditions. Contacting your underwriter does not trigger a claim. It builds a record that you flagged the issue and sought solutions.
Sureties often help behind the scenes. They can bring in a consultant to tighten project controls, approve a temporary increase in bonding capacity while you resolve a cash crunch, or coach you through a negotiated forbearance with the obligee. Silence forces them into reactive mode where their only tool is to protect the bond, which may mean pulling levers you will not like.
Treating maintenance periods as an afterthought
Performance obligations do not end at substantial completion. Many bonded jobs carry a one-year warranty or maintenance period, and some agencies hold retention until that window closes. Failing to track and address warranty calls can lead to claims late in the game, often when your team has moved on.
Keep a simple log for each project with dates, notices, and responses for punch and warranty items. If you change suppliers midstream, make sure you have the right product warranties and contacts lined up. A small leak ignored for months can balloon into a formal notice to your surety, dragging you into a dispute that is more about responsiveness than workmanship.
Underestimating the payment bond’s reach
Contractors new to public work sometimes believe payment risk ends with their signed subs. Payment bonds reach further. Second-tier subs and suppliers can make claims even if you never contracted with them directly. If you pay a first-tier sub who fails to pay its lower tiers, you can face double payment pressure.
Tighten your lien waiver and evidence-of-payment routines. On critical trades, request sub-tier releases with each billing. If a sub starts to drift, use joint checks early, not as a last resort. Underwriters watch claims activity across the market. A pattern of payment claims tied to your projects will strain your relationship even if you ultimately resolve them.
Stretching backlog without bench depth
Winning work is thrilling until the calendar turns and you realize your best PM is running two major jobs, your superintendent bench is thin, and your estimating team is still covering buyout meetings. Overextension is one axcess Surety of the fastest routes to claims. Schedules slip, documentation sags, and costs compound.
Plan backlog against people, not just capacity on paper. Underwriters will ask who is running each key project, what their past performance looks like, and how you cover vacations or turnover. Share your hiring plan and training pipeline. Even a small investment in assistant PMs and field engineers who grow into bigger roles stabilizes execution. If you win two large awards at once, talk to your surety right away. Many will work with you to phase bond issuance to match staffing ramp-up.
Not matching bank terms to bonding needs
Your bank line and your bond program intertwine. A common mistake is to sign a blanket lien or restrictive covenants that choke your ability to operate under a bond. Some loan agreements grant the bank a first claim on contract receivables and equipment that conflicts with trust fund statutes or the surety’s rights under the GIA.
Coordinate among your CPA, attorney, bank, and surety before you ink a new line. Most lenders familiar with construction will tailor language to avoid friction, such as carving out bonded contract funds from collateral or recognizing the surety’s right to contract balances after a default. Surprises surface during distress, not prosperity. Clean terms now prevent a three-way standoff later.
Leaving tax and licensing items to the last minute
A surprising number of bonding headaches trace back to administrative misses. Expired contractor licenses, missing registrations for out-of-state work, unpaid payroll taxes, or unresolved sales tax audits can derail approvals. Sureties treat tax liens as red flags because they jump ahead in priority and complicate claims resolutions.
Build a compliance calendar. When you plan to bid in a new state, start licensing 60 to 90 days out. Resolve tax notices quickly and keep proof of payment. If you need a payment plan with a tax authority, secure it proactively and disclose it. A clear story beats a last-minute scramble every time.
Assuming small jobs do not matter
Contractors sometimes think sureties care only about headline projects. In reality, small jobs often reveal control issues. Repeated small claims from the same GC, sloppy change logs, or chronic late closeout packages on minor work make underwriters nervous about scaling. Conversely, a track record of clean, modest projects with steady margins and tidy paperwork builds trust faster than one big home run.
Treat every bonded job with the same rigor. Your habits on a $250,000 school renovation reflect how you will behave on a $5 million expansion. That consistency is what the surety wants to see.
Weak internal controls on bonded funds
In many states, contract proceeds are considered trust funds for the benefit of subs and suppliers. Sureties assume you respect that concept even where it is not codified. Co-mingling project funds with unrelated expenses, especially distributions or speculative purchases, invites trouble. When a job tightens, the temptation to borrow from one project to cover another grows. That is how claims snowball.
Adopt simple guardrails. Segregate job cost accounting so you can see cash in and out by project. Require two signatures for transfers above a set threshold. If owners are slow to pay, slow the pace of discretionary spending. Underwriters will not fault you for running lean. They will walk if they sense you treat project cash like an ATM.
Overlooking the value of a construction-oriented CPA
Financial presentation influences bonding more than most contractors expect. A CPA who understands percentage-of-completion, change order accounting, and over/under billing analysis can lift your capacity. One who treats your business like a retail shop creates mismatches that underwriters have to correct mentally, which costs you credibility.
If you are pushing into larger bonded work, consider moving from a compilation to a review, or from a review to an audit. The cost difference stings in the short term, but the return shows up in better surety terms and fewer back-and-forth questions. A strong CPA also helps you plan taxes in a way that supports bonding. For example, aggressive depreciation choices that flatten earnings might save taxes now but reduce your working capital on paper. There is a middle path that balances bondability and tax efficiency.
Misjudging risk on design-build and fast-track jobs
More public and private owners push design-build and fast-track delivery. These models shift coordination risk onto the contractor. If your bond sits behind a contract that holds you responsible for design errors or schedule compression you do not control, you absorb more potential claims. Underwriters know this and will press for details on your design partners, contingency, and communication protocols.
Spell out responsibility matrices during procurement. Ensure your professional liability cover aligns with your design obligations. Price risk realistically. A shiny award on an impossible schedule is a liability disguised as a win. If you take it, break the work into milestones with clear owner decision gates so you are not carrying all the uncertainty alone.
Failing to document weather, supply chain, and owner-caused delays
Extensions of time and compensable delays depend on notice and documentation. Many contractors maintain strong daily reports early in the job, then let them wane midstream. Six months later, they try to reconstruct history for a claim or negotiation with thin records. Sureties look at your paperwork habits as a proxy for risk. Thin files translate into weak leverage.
Invest in concise, consistent daily documentation. Capture weather impacts with photos and objective measures. Log delivery dates and vendor correspondence when materials slip. When an owner changes sequencing, restate it in writing and ask for acknowledgment. You are not being adversarial. You are building the record that keeps the project fair and the bond comfortable.
Overlooking retainage planning
Retainage is often 5 to 10 percent, and on public work it may stick for months after substantial completion. On a thin-margin job, retainage can be your profit. Failing to forecast retainage collections against debt service, payroll, and taxes creates a crunch that shows up just as your crews demobilize and overhead rises elsewhere.
Model retainage into cash flow by project. Push for early release on completed scopes. Some owners will consider partial releases for long-lead materials installed and tested. Track punch list closure aggressively. Every week you shave off closeout is a week less that your balance sheet absorbs idle capital. Sureties like to see a contractor that treats closeout as its own discipline, not an afterthought.
Forgetting that a claim is not the only failure mode
Most contractors think of bonding risk as binary: you either default and the surety steps in, or you finish and all is well. The gray zone in between is where reputations form. Repeated obligee complaints, slow response to punch items, and patterns of disputed change orders all flow back through the surety’s network. Carriers talk to each other, and underwriters change desks. A reputation for being fair, responsive, and organized pays off in approvals you never see and calls returned when timing matters.
That goodwill is earned on long days when you would rather argue. It shows in how you treat subs who get in trouble, how quickly you communicate with owners when you need relief, and how thoroughly you document the file so disputes resolve on facts, not emotion.
Practical steps to strengthen your bond posture
- Build a quarterly rhythm: update WIP, internal financials, and a short narrative on major jobs or shifts. Send it to your broker and underwriter before they ask. Standardize change order and daily report templates. Train PMs and supers, and audit a random job each month for compliance. Review your GIA annually with counsel. Confirm who is bound, collateral triggers, and any changes needed as the business evolves. Prequalify subs with a simple scorecard that covers capacity, safety, finances, and references. Recheck on big awards. Align your bank covenants with bonding needs before you sign. Put the surety and lender in the same conversation early.
A short cautionary tale
A regional concrete contractor rode a hot market into a $14 million prison expansion, the largest job in their history. They had completed multiple $5 to $7 million projects and felt ready. The bid was tight, but they believed schedule certainty would win change orders later. The surety pushed for details on staffing and supplier commitments, which the contractor addressed in broad strokes. Approval came in, but with a gentle warning: document changes, staff deeply for the first ninety days, and watch cash.
Within four months, rebar deliveries fell behind due to a mill outage. The team moved crews around to stay productive but did extra forming work without signed directives. The owner’s rep turned over, and change approvals lagged. Cash grew tight because retainage ballooned while the contractor fronted labor. Subs started to press for payment. The contractor hesitated to alert the surety, hoping the next pay app would land. When it did not, they finally called.
The surety brought in a consultant who helped triage. They pulled together a change log with photos and contemporaneous notes, restructured pay apps to reflect stored materials, and set up joint checks for a strained sub. The project finished, but profit dropped by half. The underwriter supported the next bid season, impressed by how the contractor stabilized under pressure, but they also required stronger monthly reporting and a modest equity raise to fortify working capital.
Two years later, the same contractor won another large job with a cushion built into price, supplier letters attached to the bid, and a PM team that started documentation on day one. Margins held. The lesson stuck: bonds cover risk, but only discipline converts that coverage into stability.
Why these mistakes persist
Construction rewards action. Many teams carry a bias for the field and treat paperwork or financial structure as necessary nuisance. Surety bonds contractors encounter often feel like foreign policy texts in a world of concrete and steel. That disconnect breeds avoidable errors. The cure is not more meetings. It is a few routines that make risk visible and manageable without slowing production.
Underwriters are also human. They respond to patterns. If your files arrive clean, your answers are consistent, and your projects close with minimal noise, capacity follows. If your submittals are late, explanations fuzzy, and claims chatter surrounds your name, rates harden and approvals drag. You control more of that outcome than you might think.
The quiet advantage of preparation
Contractors who excel with surety bonds do a handful of things well. They share information before a crisis. They understand what their indemnity actually says. They build WIP schedules that match reality and own the story when results miss the mark. They treat bond forms as negotiable, not ordained. They make small investments in documentation that pay off when facts matter. They view the surety as part of their risk management team, not just a hurdle at bid time.
The payoff is tangible. Faster bond approvals let you submit on short-notice opportunities. Better capacity lets you stack smart backlog. Lower friction in claims or near-claims moments preserves cash and reputation. And when a cycle turns and markets tighten, you will find that carriers reserve their flexibility for contractors who have earned it.
Surety bonds are not magic, but they do amplify behavior. Strong habits make the bond an asset. Weak ones turn it into an alarm bell. If you recognize yourself in any of the mistakes above, pick one or two to fix this quarter. Put dates on the calendar, assign owners, and report progress to your team and your broker. A year from now, your numbers, your crews, and your surety will thank you.