The Bond Request and Issuance Process
Bonds are late for four reasons, and all four are preventable:
- The request went in too late
- The owner's bond form contains something the surety will not accept
- The job is over the single limit and nobody told the underwriter
- The contract documents were never sent
This is the process that avoids all four.
Who owns it: whoever handles bid administration — usually the office manager or a contract administrator. One named person. When bond requests are handled by whoever is free, they get handled late.
Phase 1 — Before the bid
Step 1.1 — Read the bond requirements when you read the bid documents
Not later. The bid package tells you everything you need to open the request:
| Look for | Where it usually is | Why it matters |
|---|---|---|
| Bid bond percentage | Instructions to Bidders | Usually 10%, sometimes 5% or a fixed amount |
| Whether P&P bonds are required | Instructions to Bidders / General Conditions | Almost always on public work |
| Whether the owner specifies a bond form | Bid package attachments | Owner-specified forms are the #1 cause of delay |
| Warranty / maintenance period | General Conditions, Division 1 | Anything over 12 months costs extra premium |
| Contract duration | Instructions / schedule | Over 24 months costs extra premium |
| Any design responsibility | Scope, Division 1, performance specs | Design-build treatment costs extra premium |
| Liquidated damages | General Conditions | Sureties read these |
The three "costs extra premium" rows are the ones estimators miss. Price them with the bond premium calculator before you submit, not after you win.
Step 1.2 — Open the request as soon as you decide to pursue
Target: 5 business days before the bid date. Minimum: 48 hours.
Send your producer the bid bond request form plus:
- The bid documents, or at least the Instructions to Bidders and General Conditions
- Any owner-supplied bond form, as a PDF — this is the single most important attachment
- The bid date and time
- Your estimated bid amount
- The anticipated contract duration and warranty period
Step 1.3 — Confirm the job is inside your capacity
Before your producer has to tell you:
- Is the estimated contract amount inside your single job limit?
- Is your current cost to complete backlog plus this job inside your aggregate limit?
If either answer is no, say so in the request and give your producer as much time as you possibly can. An over-limit request needs underwriter approval, and underwriters do not approve things on the morning of a bid. See bonding capacity explained.
Over-limit requests need two weeks. Inside-limit requests can be same day. There is very little in between.
Step 1.4 — Receive and check the bid bond
When it arrives, verify before you put it in the package:
- Obligee name exactly as the bid documents specify it
- Project name and number match the bid documents
- Penal sum or percentage matches what was required
- Correct form used — the owner's if they specified one
- Power of attorney attached
- Signed by the attorney-in-fact and sealed
- Notarized if required
- Original with wet signature if the bid requires an original
An obligee name that does not match the bid documents exactly can get your bid rejected as non-responsive. "City of Springfield" and "City of Springfield, a municipal corporation" are not always interchangeable. Copy it character for character from the bid documents.
Phase 2 — You won
Step 2.1 — Notify your producer the day you are notified
Even before the contract is executed. Your producer needs lead time, and the surety needs to know the bid bond is converting into real exposure.
Step 2.2 — Send the full package
Send the P&P bond request form with:
| Document | Why the surety needs it |
|---|---|
| The executed contract | The surety is guaranteeing this document. They will not issue without it. |
| Bid results | Where you sat against the field. A bid 20% below the next bidder is a conversation. |
| Owner-supplied bond forms | Must be reviewed before issuance |
| Final contract amount | Premium is calculated from it |
| Schedule / duration | Duration surcharge |
| Warranty period | Warranty surcharge |
| Notice to proceed, when available |
"A copy of the executed contract is needed to prepare the bonds" is not a formality. The surety's obligation is defined by the contract, and no surety issues against a draft. If the owner is slow to execute, tell your producer early so the paperwork can be prepared in parallel.
Step 2.3 — Bond form review
If the owner supplied a form, the surety's counsel reads it. Most are fine. Some contain terms sureties will not accept:
- Obligations extending beyond the underlying contract
- No time limit on the surety's obligation
- Warranty obligations far beyond the contract's own warranty
- Broad waivers of the surety's defenses
- Automatic extension to unrelated future work
If there is a problem, the surety proposes changes and the owner has to agree. This negotiation takes days and sometimes weeks. It is the reason to send the form during the bid phase rather than after award — by the time you win, the review is already done.
Step 2.4 — Underwriter approval, if needed
Inside the letter of authority, your producer issues directly. Outside it — over the single limit, unusual scope, difficult owner, joint venture — it goes to the underwriter first.
Step 2.5 — Bond number assignment
Sureties issue their producers blocks of bond numbers, commonly twenty at a time, drawn from a pool shared across that producer's clients with that surety. Your producer assigns one from the block.
Two consequences you will occasionally feel: a producer running low on numbers has to request more, which is a normal but non-instant process; and voided or spoiled numbers must be accounted for back to the surety, which is why producers do not casually re-issue.
Step 2.6 — Execution
Your producer signs as attorney-in-fact for the surety, under a power of attorney the surety has granted. A copy of that power of attorney is attached to every bond. Usually notarized, usually with a corporate seal.
You may also have to sign as principal, depending on the form.
Step 2.7 — Check the bond before it goes to the owner
Same list as the bid bond, plus:
- Penal sum matches the final contract amount
- Contract date and contract identification match the executed contract
- Both performance and payment bonds included, if both were required
- Maintenance bond included, if separately required
- Dual obligee rider attached, if the lender required one
- Power of attorney attached and dated on or before the bond date
Step 2.8 — Distribute
| Copy | Goes to |
|---|---|
| Original(s) | The owner, per the contract's delivery requirements |
| Copy | Back to the surety underwriter |
| Copy | Your job file |
| Copy | Your central bond register |
Step 2.9 — Log it
Add it to the bond register: date, number, surety, obligee, project, type, contract amount, premium, expected completion. This register is what tells you your real aggregate consumption, and it is what makes closeout possible a year later.
Phase 3 — Billing and reconciliation
Step 3.1 — The invoice
Premium is normally billed at issuance and is normally due whether or not the owner has paid you. Budget for it as a mobilization-period cost.
Step 3.2 — The execution report
The surety issues an execution report listing the bond number, the contract, and the premium charged. This is your reconciliation document.
Check it against your own register. Discrepancies happen — wrong contract amount, wrong rate tier, a surcharge applied that should not have been, a maintenance period double-rated. Nobody catches these except you.
Step 3.3 — Code it to the job
Bond premium is a job cost, not overhead. See what construction bonds actually cost.
Phase 4 — During the job
Change orders. Significant change orders may require a bond rider increasing the penal sum, and they always affect the final premium. Send your producer the change order log quarterly. Carry bond cost in your change order pricing.
Problems. If the job is going badly, your producer hears it from you first. This is the most important sentence in the entire bonding relationship. See when a bond claim happens.
Diary the completion date. Set a reminder at the projected completion date so closeout actually happens.
Phase 5 — Closeout
Covered in full at bond closeout and final premium. In short: final contract amount, final premium trued up, aggregate capacity released, consent of surety issued if the owner needs one for final payment.
The lead time table
| Situation | Lead time needed |
|---|---|
| Bid bond, inside limits, surety's own form | Same day |
| Bid bond, inside limits, owner-supplied form | 2–3 days |
| Bid bond, over single limit | 2 weeks |
| P&P bonds, inside limits, form already reviewed | 1–2 days |
| P&P bonds, owner form not yet reviewed | 3–10 days |
| P&P bonds, over single limit | 2 weeks |
| First bond with a new surety | Weeks |
Print this. Give it to whoever handles bids.
Use with: Bond Issuance Checklist and the bid bond and P&P bond request forms.