July 6, 2023   //   Construction   //   By PKF Mueller Solutions


As a contractor, a surety bond is a type of contract that provides financial protection and assurance to your clients or project owners. It is a three-party agreement between you as the contractor, the client or project owner, and a surety bond company.

The purpose of a surety bond is to guarantee that you, as the contractor, will fulfill your contractual obligations and complete the project according to the agreed-upon terms, including meeting quality standards, adhering to timelines, and fulfilling any applicable laws and regulations. In the event that you fail to meet these obligations, the surety bond ensures that the client or project owner will be compensated for any resulting financial loss.

There are typically three types of surety bonds in the construction industry:

Bid Bond: This type of bond is submitted during the bidding process and guarantees that you, as the contractor, will enter into the contract and provide the required performance and payment bonds if you are awarded the project.

Performance Bond: Once you are awarded a construction project, a performance bond is issued to ensure you will complete the project per the contract specifications. It provides financial protection to the client in case you fail to meet your obligations.

Payment Bond: This bond guarantees that you will pay all subcontractors, suppliers, and laborers involved in the project. It protects the client from potential claims or liens from these parties in case you fail to make the necessary payments.

Surety bonds are typically obtained through surety bond companies or insurance agencies. The bond company evaluates your financial stability, experience, and track record before issuing the bond. If a claim is made against the bond, the surety company may investigate the claim and compensate the client if it is found to be valid. However, as the contractor, you are responsible for reimbursing the surety company for any claims paid out.

It’s important to note that surety bonds are not insurance. While insurance protects the policyholder against unforeseen events, surety bonds are designed to protect the client or project owner from any contractual or performance-related issues.

No matter what your surety bond requirements are, financial statements will be required to qualify for contract surety bonding. Your company’s financial statement provides an understanding of how successful you operate and your ability to weather changes in the economy. The financial statements will give the surety company a good indication whether a contractor has the financial strength to complete the bonded contracts it enters into.

How can we help?

  • Provide industry knowledge of accounting services
  • Provide well-prepared audit, review, or compilation services required by Surety companies
  • Track your capital
  • Evaluate your current and past contracts
  • Determine the type of bond needed
  • Provide strategic recommendations and introductions to Lenders and Surety firms

To learn more, please contact:

Patrick Conwell, CPA, CCFIP
+1 708 745 3522