Bridges, roads and water systems are all examples of infrastructure projects for civil contractors. Civil contractors bidding on infrastructure projects rely on contract surety to ensure bid success. This blog explains how contract surety works and key factors to consider for winning bids.
Ferrari & Associates often works with contractors who understand the importance of contract surety. Recognizing the details of surety allows contractors to avoid common pitfalls and maximize their bonding capacity. We also work with contractors who have no surety experience and help walk them through the complexities of the surety process.
Partner and VP of Construction, Mike Di Pinto and Director of Surety, Kari Davis give five essential insights civil contractors need about contract surety before stepping onto the job site.
Contract Surety Insight – Bid Bonds Do More Than Prequalify You
Did you know that bid bonds aren’t just formal paperwork to check off a list? Mike adds: “it may seem trivial but many contractors don’t understand the importance of bid bonds in general. Bid Bonds serve as an early credibility test for contractors.”
As we have discussed in several surety blogs, when a contractor submits a bid accompanied by a bid bond, it’s a communication to the project owner and the surety that the contractor has the backing and reliability necessary to undertake the project. This bond verifies financial strength, past project experience, and operational capacity. To the project owner, bid bonds give confidence that the contractor is serious and capable. If your workload is already at capacity or your financing isn’t in place, the surety may hesitate to issue the bond or may impose additional conditions.
Civil contractors need to treat bid submissions as serious financial commitments rather than casual, speculative offers. Moreover, the bid bond also signals to the owner that the contractor commits to following through if awarded the project, which can influence the owner’s decision-making process.
Contract Surety Insight – A Bonding Facility Is Not Unlimited Credit
Many contractors, civil or otherwise, operate under the misconception that once a bonding facility is established, their available bonding capacity is essentially unlimited or rarely enforced. In reality however, Mike explains, “every new job you pursue will draw down your available bonding capacity. This means that your current bonded work consumes part of your financial guarantee.”
Let’s consider this example. You have a $5 million bonding limit with $3 million currently in active bonded projects leaves only $2 million of capacity for additional work. This scenario could bottleneck your ability to scale operations quickly if you’re not managing your capacity carefully.
Kari Davis, Ferrari & Associates’ Director of Surety says ‘it’s essential to maintain transparency with your surety broker about upcoming bid opportunities and project timelines so they can help you plan your bonding needs proactively. Proper capacity management ensures you don’t find yourself unable to bid on lucrative projects when opportunities arise unexpectedly. Constant communication and planning with your surety can help you avoid overextending your limits and ensure continued growth.”
Contract Surety Insight – Delays and Change Orders Can Trigger Reviews
Surety companies play a monitoring role, tracking how well bonded projects progress. If your project begins to encounter delays, scope creep, or signs of financial strain, your surety may request updated financial statements, revised budgets, or additional documentation to reassess your capacity and risk.
“Civil infrastructure projects are especially prone to delays caused by weather conditions, subcontractor issues, municipal permit processes, or other unforeseen circumstances. It’s vital to keep detailed, organized records of change orders, job costs, and schedule updates to facilitate transparency” Mike advises. Proactively informing your surety of any issues before they escalate helps protect your bonding arrangement and maintain trust. Silence or lack of communication can be interpreted as an increased risk, which may potentially jeopardize your bonding status or future projects. Maintaining a transparent, proactive dialogue demonstrates your commitment to project integrity and risk management.
Contract Surety Insight – Personal Indemnity Is Almost Always Required
Even if your company’s financials and operational history are strong, sureties frequently require personal indemnity agreements from owners, particularly for privately held or smaller contractors. Kari explains “this indemnity means that your personal assets—such as your home, savings, or other property—may be at risk if your company defaults on its bonded obligations. The indemnity agreement provides the surety with legal recourse to recover losses if the contractor cannot fulfill contractual obligations. It reinforces the principle that bonding is not simply insurance against loss, but rather a form of financial guarantee backed by personal responsibility.”
Before signing such agreements, it’s critical to fully understand the scope and potential implications, including what assets may be at stake and the extent of your personal liability. Contractors should consider consulting legal and financial advisors to clarify their obligations and to evaluate the overall risk exposure before committing.
Contract Surety Insight – Claims Hurt Your Future Bonding Capacity—Even If They’re Disputed
A claim on a performance or payment bond—even one you firmly contest—can have lasting negative effects. Kari says “sureties report claims, disputes, and losses to industry databases, which often inform future bonding decisions. If your project faces issues and your bond is called, the resulting claim—even if ultimately resolved in your favour—can lead to a reduction in your bonding limits or increased collateral requirements on subsequent projects.” In some cases, a dispute or claim can trigger a reevaluation of your overall risk profile by your surety, making it more difficult or costly to secure bonding in the future.
According to Mike, “civil contractors should be proactive in dispute resolution when problems arise. Building strong relationships and demonstrating a commitment to resolving conflicts efficiently can help preserve your bonding capacity. At the same time, engaging promptly with relevant parties helps maintain your credibility within the industry.” Remember, managing claims effectively and maintaining open communication with your surety can be key to safeguarding your ongoing bonding ability and reputation.
Mike Di Pinto, Kari Davis and the insurance and surety team at Ferrari & Associates specialize in helping civil contractors structure, maintain, and grow their bonding facilities. We work with leading sureties, understand complex infrastructure requirements, and advocate fiercely for our clients when the stakes are high. Our team provides tailored strategies to optimize your bonding capacity and ensure your projects proceed smoothly, even when challenges emerge. Reach out to us before your next bid. Surety isn’t just about compliance, it’s a powerful form of leverage that can support your growth and success.
For more information, please check out our blog article on Contract Surety 101.
