Seeking surety bonding is no walk in the park. In today’s shifting environment, contractors face evolving requirements, changing project types and sizes, rising costs and new underwriting expectations. Contractors pursuing surety support may encounter tighter scrutiny as they grow. At the same time, underwriters are looking for organizations, practices, track records and leadership teams that check—and will continue to check—a number of critical boxes.

A range of surety underwriters recently weighed in on what they are seeking in contractors as the industry moves into its next phase.

CHANGES AND TRENDS

Many of the changes shaping today’s market are multifaceted. Brent McAllister, global head of surety underwriting for Zurich Insurance, sees what he describes as “profound” shifts.

“Driven in part by megaprojects such as data center and infrastructure work, the U.S. construction industry is navigating profound changes, where success will depend on managing escalating contract values, labor shortages and continuity risks,” McAllister says.

“At the same time,” he adds, “overall project backlogs continue to grow due to larger project values driven by rising input costs. These increases have resulted in the need for much larger bonding programs as contractors seek additional surety capacity.”

However, support is not automatic.

“Top sureties will prioritize their support of increased bonding programs for contractor clients with consistent profitability track records who maintain strong liquid financial resources,” McAllister says. “When contractor balance sheets trail backlog growth, forward-looking surety underwriting requires much deeper risk assessment of profitability trends, outlook for profit retention and the likelihood of balance sheets catching up to extended surety programs.”

Shawn Scott, chief underwriting officer, contract East, for Liberty Mutual Surety, says contractors are entering 2026 in a strong position.

“As we begin 2026, our contract clients are exceptionally well-positioned to capitalize on the accelerating wave of megaprojects reshaping the construction landscape,” Scott says. “Many contractors are entering the year with strong backlogs and a deep pipeline of high-quality bidding opportunities. Margins and growth prospects remain robust, driven by sustained investment in infrastructure, data centers and related power projects.”

Still, the landscape is evolving. “Clients are reporting fewer locally sourced projects and increasingly crowded bid lists for work under $25 million,” Scott says, a dynamic that calls for “discipline and strategic alignment.”

Cost pressures remain significant. “Cost inputs remain high due to limited subcontractor availability, higher material prices and rising labor costs with uneven skill levels,” Scott says. “As a result, resolving client issues is becoming increasingly expensive.”

Paul Nebraska, vice president for construction services at Travelers, says infrastructure funding remains a driver—but is shifting.

“Big federal programs like the Infrastructure Investment and Jobs Act have boosted demand for contract bonds over the past several years,” Nebraska says. “However, with IIJA spending decreasing in 2026, the market is watching how state and local programs, as well as other federal initiatives such as the Inflation Reduction Act and CHIPS and Science Act, sustain demand across different segments.”

He describes conditions as uneven. “Inflationary pressures on labor and materials and ongoing supply chain fluctuations can influence surety support, capacity and contractor risk profiles,” Nebraska says. “These factors shape bond access and capacity dynamics for contractors of all sizes, impacting both merit shop and union contractors alike.”

Shawn Weppelman, assistant vice president of surety for Brunswick Companies in Cleveland, Ohio, says he is seeing “an increasing number of general contractors requiring bond backs from their subcontractors.” He also notes that “in states such as California and Texas, solar-related projects continue to represent a significant portion of the work, while infrastructure spending remains steady.”

Tariffs have introduced additional uncertainty. Weppelman says that contractors have largely adapted by applying strategies and protections developed during the COVID-era supply-chain disruptions.”

Nebraska adds that while the same underwriting fundamentals apply to contractors of all sizes, differences do exist.

“For contractors working on smaller jobs or requiring transactional bond types, digital and AI-supported underwriting is increasingly helpful,” he says. “More thorough financials are required for larger bid and performance bonds.”

KEY FACTORS TO CONSIDER

Contractors pursuing bonding must prepare across multiple fronts—from company-specific financial practices to broader industry risks.

Financial statement quality remains foundational. “For multi-million-dollar deals, surety companies typically require CPA-prepared or CPA-certified financial statements,” Weppelman says.

As with any rule, there can be exceptions.

“In some cases, bonds may be approved using internally prepared statements if they are accurate and well supported,” he says. “However, this often requires additional work to ensure the financials are properly structured and presented before submission to the surety for review.”

Tax strategies also matter, particularly for contractors without an established surety track record. “Because surety underwriting places significant emphasis on working capital and equity, contractors seeking bonding must strike an appropriate balance between tax efficiency and maintaining a strong balance sheet,” Weppelman says.

Personal credit of ownership is another underwriting consideration.

“Poor or neglected personal credit can materially impact bonding capacity and, in some cases, may be the primary reason a contractor is unable to obtain bonds,” Weppelman says.

Tim Holicky, senior executive underwriter for The Hartford’s construction central bond team, cites rising material costs, talent retention challenges and labor constraints as additional industrywide pressures.

Labor shortages are driving “growing pressures,” he says, compounded by “the retirement of experienced project leaders and the ongoing challenge of managing turnover within project teams.

“At the same time, contractors are being asked to deliver larger, faster and more complex projects under increasingly unfavorable contractual risk allocations,” Holicky says.

Together, those forces can stretch companies thin. “It becomes easy for firms to become overextended, especially when accelerated schedules create significant cash-flow strain,” he says.

McAllister echoes the labor concern. “Labor continues to be the largest constraint to further growth for contractors of all sizes and across sectors,” he says, citing management staffing, project managers, engineers and craft labor shortages.

As a result, “sureties are increasingly prioritizing contractor clients who have built solid pipelines of skilled craftspeople and supervisory staff ready for roles of greater responsibility,” McAllister says.

Succession planning also is rising in importance. Holicky frames the issue directly: “What happens to the business if something happens to the founder, owner or visionary who has held the organization together?”

Identifying and developing the next generation of leaders—and establishing a clear ownership transition plan—have become pressing issues, he says.

McAllister adds that as contractors confront aging ownership, many lack succession plans. “We have seen a variety of exit plans, including private equity, ESOPs, family transition and strategic buyers, which can lead to complex financial structures requiring sureties to adapt their support,” he says.

“We encourage our clients to proactively formalize management and ownership succession plans to ensure business continuity and sustained surety support.”

Nebraska emphasizes that underwriting fundamentals remain consistent.

“Sureties are focused on the same risk fundamentals for both merit shop contractors and union contractors: financial health, backlog quality, management capability and the contractor’s ability to execute their business plan,” he says.

THE “C”LASSICS

Despite evolving trends, surety underwriting continues to rest on three classic pillars: capital, capacity and character.
Capital—the strength and quality of a contractor’s financial position—remains central.

“The strength and quality of the contractor’s financial statements” are key, Weppelman says. “And the larger the bond request, the greater the need for bonding expertise.”

Holicky puts it bluntly. “Sureties expect contractors to approach the development of their balance sheet with the same thought and discipline they apply to building a project,” he says. “At the core of a strong balance sheet is cash, because most contractor failures ultimately stem from running out of it.”

He cautions against overreliance on overbillings. “Many contractors rely heavily on the ‘bank of overbillings,’ using project owners’ funds to finance ongoing work,” Holicky says. “While this can support liquidity, it’s important to remember that overbillings must eventually be reinvested into the project. What appears as excess cash today is often a future obligation.”

He also stresses controlling overhead. “Every dollar saved on overhead expense increases your working capital and net worth by the same amount,” he says.

And discipline matters. “Contractors must be “disciplined enough to say no to additional work when it threatens their financial stability,” Holicky says.

“Ultimately, contractors succeed to the extent that they earn consistent profit at the project level,” he adds. “The income statement is simply the aggregation of profit and loss across all jobs. This makes it essential for contractors to focus on cash flow, cost control and margin management on each individual project.”

When it comes to capacity, Holicky notes that modern contractors must demonstrate management of far more than field operations.

Responsibilities now include “commodity management and forecasting, logistics and scheduling, legal and risk management, accounting, economics and cash-flow control, as well as human resources and benefits administration,” he says.

“That demonstrates that today’s contractors must operate as sophisticated business enterprises, not just builders. That sophistication is operational capacity in surety underwriting.”

Sureties also evaluate risk appetite. “That appetite becomes evident in project-selection discipline and go/no-go decision processes,” Holicky says.

Increasingly, contractors are aligning project selection with preconstruction teams to assess market fit, backlog strategy, risk profile, margin expectations, delivery method, owner reputation, subcontractor availability and internal capacity before pursuing work.

Nebraska advises contractors to pursue logical growth. “Contractors hoping to undertake significantly larger project sizes than their previous work experience may challenge their ability to secure corresponding capacity,” he says. “Underwriters like to see repeatable performance, so contractors should aim for a logical progression of project size and scope rather than making big jumps that can strain capital and capabilities.”

Weppelman notes that sureties apply heightened scrutiny when a bond request involves a project more than twice the size of the contractor’s largest completed job.

In such cases, contractors should clearly explain contract value drivers, including inflation, material cost composition, comparisons to similar completed projects and relationships with the obligee and key subcontractors.

The third and final pillar, character, speaks to professionalism and trust.

Weppelman describes it as “overall professionalism, including how the contractor presents in meetings and interacts with the surety.”

Alignment matters. “Alignment is essential regarding business growth plans, contractual risk management, balance sheet liquidity and continuity in management and ownership,” McAllister says.

Transparency is also critical. “Builders and contractors seeking surety help should maintain up-to-date financial statements with supporting documentation for WIP, underbillings, overbillings, cash flow and cash reserves,” Nebraska says. “This builds credibility.”

He also encourages proactive communication. “Be proactive in communicating the business strategy and plans with the surety and surety agent, treating them as key partners,” he says.

McAllister underscores the importance of open dialogue. “Clear, reciprocal communication should support operations rather than disrupt them, ensuring both parties have shared understanding of organizational strategy,” he says. “Promptly addressing challenges is key. Both contractors and sureties value timely, honest updates so they can respond proactively and maintain strong, collaborative relationships that support successful project delivery and sustainable growth.”

Scott offers a final reminder. “Time is valuable,” he says. “Your partners, including your surety, should provide insight into market conditions, competition and construction trends. Meetings with surety partners should set clear expectations, clarify needs and enable execution of your business plan.”

In an environment defined by change, the fundamentals remain constant. Contractors that manage capital, demonstrate capacity and exhibit character—while maintaining strong communication—position themselves to secure the surety support necessary for sustainable growth.

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