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Prequalification Letters

A prequalification letter is a one-page letter from your surety saying, in effect: we have looked at this contractor, we support them, and here is roughly how much work we will bond for them.

Owners ask for one when they are deciding who gets on a bid list. It costs you nothing, your producer can usually produce one the same day, and a lot of contractors do not know they can just ask.

What it says​

A typical letter covers five things:

  1. How long the surety has supported you — "for the past seven years"
  2. The relationship quality — "we have had a most favorable experience"
  3. Your aggregate bonding capacity — total work they will support at one time
  4. Your single project capacity — the largest one job
  5. The surety's own credentials — admitted in the state, listed on the U.S. Treasury's Circular 570, and its A.M. Best rating

Then the conditions, which matter as much as the numbers.

What it deliberately does not say​

Every prequalification letter contains language along the lines of:

This letter is not an assumption of liability or a commitment to issue bonds. Our support is conditioned upon and subject to the completion of our underwriting process, including our review of and satisfaction with the underlying contract documents, bond forms and financing.

That is not boilerplate padding. It is the entire legal position of the letter. The surety is telling the owner what it thinks of you today, and reserving the right to look at the actual job before it commits.

Why this matters to you: an owner who reads the letter as a guarantee will be unhappy later. It is worth understanding the distinction well enough to explain it, because it makes you look like you know how your own industry works.

Watch out

Occasionally an owner demands a letter with the conditional language removed, or one that "commits" the surety. No surety will issue that. If you meet this requirement, the answer is a conversation between your producer and the owner, not a better letter.

Who signs it​

The letter goes out on the surety's letterhead, not your producer's. But your producer usually signs it, as attorney-in-fact for the surety — meaning they hold a power of attorney authorizing them to sign on the surety's behalf.

This is the same authority that lets them execute the bonds themselves, and it is what makes same-day turnaround possible. The numbers in the letter come from your letter of authority — the standing document stating your single and aggregate limits — so as long as the letter stays inside those figures, nobody needs to call the underwriter.

Generic versus addressed​

There are two kinds, and asking for the wrong one wastes a day.

Generic — addressed "To whom it may concern." Useful for prequalification packages, your website, and general credibility. Ask for one and keep a PDF on hand.

Addressed — written to a specific owner, by name and address, sometimes referencing a specific project. Many public agencies and most institutional owners require this. It takes an extra day at most, but it takes that day, so ask early.

Rule of thumb

Keep a current generic letter on file at all times, refreshed whenever your capacity changes or your letter of authority renews. Request addressed letters project by project, with 48 hours of notice.

How to ask​

Email your producer with:

  • The owner's exact legal name and address for an addressed letter
  • The project name, if it should be referenced
  • Any specific capacity figure the owner requires you to demonstrate
  • The deadline
  • Whether they need original signatures or a PDF is acceptable

If the owner has a required form or specific wording, send that too — it is far easier for the surety to review their language up front than to redo the letter.

When the letter is not enough​

Larger owners increasingly run their own prequalification process rather than accepting a surety letter. Expect to fill out their form, which will ask for much of the same material your surety already has:

  • Financial statements
  • Bonding capacity confirmation (the letter)
  • Safety record — EMR, OSHA 300 logs
  • Similar project experience with references
  • Key personnel resumes
  • Insurance certificates
  • Litigation history

Keeping a current prequalification package assembled turns a two-day scramble into a ten-minute task. The contractor questionnaire template collects most of it in one place.

If your producer is slow​

A prequalification letter inside your existing capacity should take hours, not days. It is a merge of your standing numbers onto surety letterhead.

If it routinely takes a week, one of three things is true: your producer is disorganized, your capacity numbers are stale and need re-underwriting, or your letter of authority has expired. All three are worth finding out about.

Get the template: Prequalification Letter Template — the standard structure with every variable marked, so you can see exactly what your producer is filling in and check it before it goes to an owner.

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