For contractors
What a surety underwriter actually looks at
A surety underwriter evaluates whether your company will finish the proposed work and meet its payment obligations. The documents support three judgments: character, capacity, and capital. Those “three Cs” connect the people running the company, the work they intend to do, and the resources available to do it.
Character: does the story hold together?
The underwriter looks for evidence that the company meets obligations, describes problems accurately, and follows through on commitments. Personal credit, supplier and project-owner references, litigation, liens, and past disputes help establish that record. Prepare explanations for negative items before the agent has to ask.
If a supplier was paid late because of a disputed delivery, identify the dispute and its resolution. If an owner withheld payment, explain the current status and how the business financed the delay. The surety wants to understand how you handled the problem and what remains outstanding.
Ownership, job values, reporting dates, and experience should agree across the questionnaire, financial statements, and conversation. Correct errors openly and identify the latest version of each report. Checkable information gives the underwriter a useful basis for assessing the account.
Capacity: can this organization execute this job?
Capacity means the practical ability to perform. Trade experience, completed projects, estimating discipline, key people, equipment, and current workload all matter. Explain how the proposed job compares with work your team has already finished, including differences in trade, location, methods, and schedule.
Show who will manage the work and what those people are already doing. If the superintendent is committed elsewhere, explain the staffing plan; if equipment must be rented, include its availability and cost. Identify major subcontractors and how their schedules fit the contract.
Backlog is work the company has committed to perform but has not finished. Include unbonded jobs because they use the same labor, supervision, and cash. Show how overlapping starts, purchasing commitments, and expected completion dates fit into a combined operating plan.
Capital: what supports the work?
Working capital is current assets minus current liabilities. Net worth, or equity, is total assets minus total liabilities. Equipment contributes to equity without providing cash for next week's payroll, while profitable jobs create receivables that still need to be collected.
For underwriting, the surety adjusts balances to reflect cash restrictions, doubtful receivables, related-party loans, and inventory quality. Equipment is ordinarily a noncurrent asset and therefore sits outside accounting working capital. Explain adjustments separately so everyone understands the difference between your books and the underwriting analysis.
Working capital of roughly 5%–10% of bond-program capacity is a published underwriting benchmark, with the required level depending on the business (working-capital guidance). Ask how your surety weighs adjusted working capital, trade, workload, and financing when reviewing your program.
Asset quality matters alongside the total. Identify receivables that are collectible, disputed, or owed by related parties, and distinguish usable inventory from obsolete material. Support significant balances with aging reports, collection history, and a clear explanation of repayment terms.
Internal, compiled, reviewed, and audited statements
Internal statements come from your accounting records without a CPA assurance report. A compilation presents financial information without assurance, while a review provides limited assurance through inquiry and analytical procedures. An audit involves more extensive procedures and an opinion, providing high but not absolute assurance (AICPA comparison).
The reporting level depends on the surety's requirements, account complexity, financial strength, and proposed obligation. Ask the agent which engagement the account needs before ordering one. Give the CPA that request and agree on the supporting schedules, delivery date, and work needed to prepare the books.
One CPA firm's posted fee schedule lists compilations at $2,500–$5,000 and reviews at $5,000–$12,500. Obtain a scoped proposal for your business, including any audit work. Ask whether the fee includes cleanup, job schedules, tax work, and additional statements.
WIP: the unfinished jobs behind the financial statement
A work-in-progress schedule, or WIP, lists open jobs with contract value, estimated total cost, cost incurred, and billings to date. It connects reported results with the work still ahead. When the estimated final cost rises, update the schedule so the expected profit reflects what remains to be spent.
Underbilling means recognized revenue exceeds billings; overbilling means billings exceed recognized revenue. Neither measures cash collected. Contracts with advance billing create a further question: how much of the collected money remains available for the costs that follow?
Underbillings also need explanation. Identify normal billing delays, unapproved changes, and estimates that overstate progress. An amount shown as earned revenue is useful to the cash plan only when the business expects to bill and collect it.
The following fictional contract uses cost-to-cost progress: costs incurred divided by estimated total cost. Multiplying that progress percentage by contract price gives the earned revenue used in this example.
| Item | Sample amount or calculation |
|---|---|
| Contract price | $120,000 |
| Estimated total cost | $100,000 |
| Cost incurred to date | $50,000 |
| Assumed progress | $50,000 divided by $100,000 = 50% |
| Earned revenue | 50% of $120,000 = $60,000 |
| Billings to date | $70,000 |
| Overbilling | $70,000 less $60,000 = $10,000 |
With billings of $55,000 instead, the same fictional job would have an underbilling of $5,000. Review cash collected, remaining cost, and the timing of the next payment separately. This underwriting explanation of contractor billings describes the distinction between earned revenue and amounts billed.
Personal financials and the bank relationship
An owner's personal financial statement shows the resources and obligations of a potential indemnitor: someone agreeing to reimburse specified surety losses and expenses. Disclose debts and guarantees alongside assets. Include commitments to other companies so the underwriter sees how much support is already promised elsewhere.
A committed bank line provides financing for collection delays within its terms. Document borrowing conditions, expiration, restrictions, and existing use. Drawing short-term debt increases cash and a current liability together, leaving accounting working capital unchanged.
Give the agent current bank contact details and permission for the requested reference. Explain significant workload and financing changes to both the bank and surety. Their separate reviews are easier to complete when each has the same picture of the business.
Match each document to a question
| Document or evidence | What it explains | Reporting date |
|---|---|---|
| Year-end statements and CPA report | Financial position, earnings and assurance | Latest available year-end, with subsequent changes explained |
| Interim balance sheet and income statement | Current performance and resources | Most current closed period requested |
| WIP schedule | Remaining work and changing job profit | Same date as supporting financial records |
| Receivables and payables aging | Collection and payment timing | Consistent with the balance sheet |
| Personal financial statements | Owner resources, debts and guarantees | Current date specified by the surety |
| Bank confirmation | Credit terms, availability and relationship | Current confirmation of material terms |
| References and completed-job history | Execution and payment behavior | Recent work and current contact details |
Ask for a dated document request and explain what changed after each reporting period. A large distribution, loss, or new contract belongs in the cover note even when the financial statement is recent. Use the application checklist to organize the file, or request an introduction through the contractor contact link.
Common questions
- Why do they want my personal financials?
- They show the resources and obligations of the people standing behind the company, especially when personal indemnity is required. Ask whose statements are needed and arrange secure delivery through the agency.
- What is a reviewed statement and do I need one?
- A review is a CPA engagement providing limited assurance through specified procedures. Confirm the surety's required reporting level with the agent and CPA before commissioning the work.
- How recent does my financial statement need to be?
- Ask the surety for the reporting date it requires. Bring the latest year-end statement and current interim information aligned with WIP and aging reports, and disclose material changes after those dates.
Keep reading
Sources
- AICPA: Levels of financial statement assurance — retrieved 2026-10-09 UTC.
- Published guidance on working capital and bank credit — retrieved 2026-10-09 UTC; the range concerns a bond program, not a single-job formula.
- Published explanation of underbilling and overbilling — retrieved 2026-10-09 UTC. The WIP table uses invented numbers and assumes cost-to-cost progress; actual revenue recognition depends on the contract and accounting requirements. Document-table dates are discussion points, not universal expiry rules.
- One CPA firm's fee disclosure — retrieved 2026-10-09 UTC; these are that firm's prices, not construction-industry averages.