Bonding Capacity Management

Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: Owner, CFO, Controller

Purpose

Establish procedures for managing and maximizing bonding capacity to support growth while maintaining surety relationships.

Why Bonding Capacity Matters

Construction Bonding Reality:

Many projects require bonds
Capacity limits growth
Surety is a partner, not just vendor
Capacity is earned through performance
Loss of capacity can be devastating

Types of Bonds:

Bond Type	Purpose	Cost
Bid bond	Guarantee bid	Free or minimal
Performance bond	Guarantee completion	1-3% of contract
Payment bond	Guarantee payment to subs/suppliers	Included with P-bond
Maintenance bond	Warranty period	Varies

Understanding Capacity

Capacity Limits:

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         BONDING CAPACITY SUMMARY
================================================================

Surety: _______________________
Agent: _______________________
As of: _______________________

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CAPACITY LIMITS:

Single job limit: $_________________
Aggregate program limit: $_________________

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CURRENT UTILIZATION:

| Project | Contract Value | Bond Amount | Status |
|---------|----------------|-------------|--------|
|         |                |             |        |
|         |                |             |        |
| TOTAL   |                |             |        |

Current bonded backlog: $_________________
Available aggregate: $_________________
Utilization: _____%

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LARGEST PROJECT BONDABLE:

Single limit: $_________________
Largest contract bondable: $_________________
  (Accounting for bond amount vs. contract value)

================================================================

Capacity Factors:

Factor	Impact on Capacity
Working capital	Primary driver
Net worth	Primary driver
Profitability	Confidence factor
Backlog quality	Risk assessment
Track record	Trust factor
Financial trends	Future outlook
Management strength	Execution capability
Banking relationship	Liquidity support

Maximizing Capacity

Capacity Building Strategies:

================================================================
         CAPACITY IMPROVEMENT PLAN
================================================================

Current single limit: $_________________
Target single limit: $_________________
Current aggregate: $_________________
Target aggregate: $_________________

================================================================

FINANCIAL IMPROVEMENTS:

Working capital:
  Current: $_________________
  Target: $_________________
  Action: _______________________

Net worth:
  Current: $_________________
  Target: $_________________
  Action: _______________________

Profitability:
  Current margin: _____%
  Target margin: _____%
  Action: _______________________

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OPERATIONAL IMPROVEMENTS:

Backlog quality:
  Action: _______________________

Management depth:
  Action: _______________________

Safety record:
  Current EMR: _____
  Target EMR: _____
  Action: _______________________

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RELATIONSHIP IMPROVEMENTS:

Surety communication:
  Action: _______________________

Financial reporting:
  Action: _______________________

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TIMELINE:

| Action | Owner | Timeline | Expected Impact |
|--------|-------|----------|-----------------|
|        |       |          | $               |

================================================================

Surety Relationship Management

Annual Surety Meeting:

================================================================
         ANNUAL SURETY MEETING AGENDA
================================================================

Date: _______________________
Attendees:
  Company: _______________________
  Surety: _______________________
  Agent: _______________________

================================================================

AGENDA:

1. COMPANY UPDATE (30 min)
   - Year in review
   - Financial performance
   - Key projects completed
   - Current backlog
   - Upcoming opportunities

2. FINANCIAL REVIEW (30 min)
   - Year-end financials
   - Key ratios
   - Working capital
   - Banking relationship

3. CAPACITY DISCUSSION (30 min)
   - Current limits
   - Requested changes
   - Specific project needs
   - Growth plans

4. CONCERNS/FEEDBACK (15 min)
   - Any concerns from surety?
   - Any concerns from us?
   - Improvement opportunities

5. ACTION ITEMS (15 min)

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PREPARATION CHECKLIST:

☐ Year-end financial statements
☐ WIP schedule
☐ Backlog report
☐ Aged AR/AP
☐ Bank statements
☐ Project list with status
☐ Organizational chart
☐ Business plan (if growth focused)

================================================================

Ongoing Communication:

Communication	Frequency	Content
Financial statements	Quarterly/Annually	Per agreement
WIP schedule	Quarterly	Per agreement
Large project notification	As needed	Before bidding
Problem project notification	Immediately	Any issues
Capacity request	As needed	Before pursuing

Project Bonding Process

Bond Request Process:

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         BOND REQUEST
================================================================

Project: _______________________
Owner: _______________________
Bid date: _______________________
Contract amount: $_________________
Bond amount: $_________________

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PROJECT INFORMATION:

Type of work: _______________________
Location: _______________________
Duration: _____ months
Self-perform %: _____%
Largest subcontract: $_________________

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CAPACITY CHECK:

Single limit: $_________________
This project: $_________________
Within single? ☐ Yes  ☐ No (need approval)

Current aggregate used: $_________________
This project: $_________________
New aggregate used: $_________________
Within aggregate? ☐ Yes  ☐ No (need approval)

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PROJECT RISK FACTORS:

☐ Standard risk
☐ New client
☐ New project type
☐ Geographic expansion
☐ Larger than typical
☐ Schedule concerns
☐ Other: _______________________

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ATTACHMENTS:

☐ Bid documents
☐ Contract (when available)
☐ WIP schedule
☐ Financial statements (if not recent)

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APPROVAL:

☐ Approved by surety
☐ Conditional approval: _______________________
☐ Declined: _______________________

Date: _______________________

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Capacity Planning

Forward Capacity Planning:

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         CAPACITY PLANNING
================================================================

Planning period: _______________________

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PROJECTED ACTIVITY:

| Period | Projected Awards | Cumulative Backlog | Capacity Used |
|--------|------------------|--------------------| --------------|
| Q1     | $                | $                  | %             |
| Q2     | $                | $                  | %             |
| Q3     | $                | $                  | %             |
| Q4     | $                | $                  | %             |

Peak utilization: _____% in _______

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LARGE PROJECT PIPELINE:

| Project | Est. Value | Est. Bid Date | Bond Required | Impact |
|---------|------------|---------------|---------------|--------|
|         | $          |               | $             |        |

If we win [Project], utilization becomes: _____%

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CAPACITY CONSTRAINTS:

Will capacity constrain our growth? ☐ Yes  ☐ No

If yes, options:
☐ Increase capacity (need financial improvement)
☐ Prioritize pursuits (selective bidding)
☐ Joint venture (share bond)
☐ Owner self-bond (negotiate with owner)

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Problem Project Management

When Projects Go Wrong:

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         PROBLEM PROJECT NOTIFICATION
================================================================

Project: _______________________
Contract: $_________________
Bond: $_________________

================================================================

ISSUE:

☐ Cost overrun (estimated: $_________)
☐ Schedule delay (days: _____)
☐ Quality/defect issue
☐ Client dispute
☐ Subcontractor default
☐ Other: _______________________

Description:
___________________________________________________________

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CURRENT STATUS:

% complete: _____%
Remaining work: $_________________
Projected final cost: $_________________
Projected margin: _____%

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RECOVERY PLAN:

Actions being taken:
1. _______________________________________________________
2. _______________________________________________________
3. _______________________________________________________

Expected outcome: _______________________
Timeline: _______________________

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NOTIFICATION TO SURETY:

Notify surety if:
☐ Project will lose significant money
☐ Claim likely from owner
☐ Unable to complete without assistance
☐ Subcontractor bond claim incoming

Notification date: _______________________
Surety response: _______________________

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Surety Claims

If a Claim Occurs:

Notify surety immediately
Do not admit liability
Document everything
Cooperate with surety investigation
Understand indemnity obligations

Impact of Claims:

Capacity may be reduced
Rates may increase
Future bonds may require additional indemnity
May need to change sureties

Bonding Guide
Financial Reporting
Working Capital Management
Go/No-Go Decision Process

Template provided by support.construction. Your surety is a partner—treat them like one.

Purpose​

Why Bonding Capacity Matters​

Construction Bonding Reality:​

Types of Bonds:​

Understanding Capacity​

Capacity Limits:​

Capacity Factors:​

Maximizing Capacity​

Capacity Building Strategies:​

Surety Relationship Management​

Annual Surety Meeting:​

Ongoing Communication:​

Project Bonding Process​

Bond Request Process:​

Capacity Planning​

Forward Capacity Planning:​

Problem Project Management​

When Projects Go Wrong:​

Surety Claims​

If a Claim Occurs:​

Impact of Claims:​

Related Documents​