Character in Contract Surety Bond Underwriting

Character in Contract Surety Bonds. One contractor and two people on a construction site looking up at a circle with "Honesty, Integrity and Ethics" in the circle. A hand holding the circle

Character is backbone of Contract Surety Bond Underwriting. It is one of the “Three C’s” along with Credit and Capacity. However, my experience tells me that is the most important in determining if contractor may eventually have a performance bond claim. Unfortunately, Character is also the most difficult of the 3 C’s to underwrite. So, what is character as it relates to contract surety bonds? Character is a contractor’s willingness to fulfill their commitments to all stakeholders, even when circumstances change or are difficult. People often mistakenly associate somebody’s character with their manners. Are they a nice person? Are they polite? Many not so nice people have great character and vice versa. This article looks at what character may look like in contract surety underwriting.

Before a Contract Bond is Written

Contractors, Bond Brokers and Bond Underwriters all work in tandem to understand a contractor’s operations and issue construction surety bonds such as bid bonds and performance bonds. As part of the process, a contractor typically makes both oral and written commitments. These could be things like providing a certain type of financial statement on a timely basis, leaving enough capital inside the construction company, protecting themselves from subcontractor risks, limiting bonuses and equipment purchases, etc. These are just few examples of commitments that contractors often make to surety bond underwriters. Unfortunately, some contractors deliberately break these commitments after they get the contract bonds they need. This can and should be a major character red flag to contract bond underwriters. After all, willingness to break commitments may lead to more significant compromises in the future. Most surety bond underwriters will give the contractor another chance in these cases, but repeat offenders are often left looking for another surety bond company.

The General Indemnity Agreement

Indemnity is an important part of writing contract surety bonds. As a credit product, the surety bond company expects the Principal and other indemnitors to make them whole in a claim situation. Often, the surety bond company will not know if a contractor is committed to this until a claim happens. However, they do look for signs up front during the underwriting process that speak to the contractor’s character. For example, is the contractor trying to get off indemnity? Will the contractor’s spouse not sign? The long running joke in the surety world is that is a contractor’s spouse does not trust them enough to sign, why should the surety bond company? We all want to limit our personal exposure in business, but for a surety bond underwriter, there is some truth to this and they have to decide if a contractor will run and shelter in a claim situation, or stick around and try to make things right.

Other Business Entities

Another Character issue involves other business entities. Contractor’s often own other businesses outside of their construction company. This is not a red flag by itself, but the surety bond company will want to make sure that the other company can support itself and that money will be kept in the construction company. Often to protect their interests, the surety bond company will also want the indemnity of other company or companies. Failure to agree to this could be a signal to many bond companies that the contractor will try to shelter assets in the other entities if something goes wrong.

Underwriting Character in Contract Surety Bonds


So how does a surety bond broker and underwriter know about a contractor’s character? The World has become a smaller place and information travels very quickly. Often, a local surety bond underwriter already knows of the account. It is possible that an underwriter may even have experience with the contractor through other accounts. For example, I have had underwriters pass on accounts because of the way that the contractor worked with the bond company’s other accounts in the past. Maybe they are unfair in their dealings, poor at supervision and management, slow payers, etc.

Similarly, I have seen surety bond underwriters who worked with a contractor while they were at another surety bond company or bond brokerage. Switching jobs is common in surety and underwriters will certainly take their memories of a contractor’s character with them.

Finally, character is often weeded out by other submissions to the surety bond company. For example, we submit contractor accounts to the surety bond company with the information we have been provided. At times, we get a call saying that the account has been submitted by another with different information. This can either be a sign of inaccurate information provided by the contractor or by the broker. If it is the contractor, it may be a sign that they are not truthful and would be a character red flag.


Surety Bond Underwriters generally do not like surprises. This is especially true if those surprises are bad news such as unexpected losses, excessive distributions, broken commitment, and similar actions. Communication is important and considered a part of good character. The surety bond underwriter will find out about such actions eventually and it is much better to be proactive. Too many surprises will lead the underwriter to questioning a contractor’s character and possibly move on from the relationship.

Multiple Surety Bond Companies

Surety bond companies write contract bonds for contractors and set bond capacity based on being the sole provider of bonds for that contractor. There are exceptions such as Co-Surety arrangements, but these are known and agreed to by the parties. Sometimes, contractors try to get past these limits by using multiple surety bond companies. This almost never works long term. Between public bid results, job subscriptions and software, contract schedules and word of mouth, the surety bond companies almost always learn that another surety is involved. This usually leads to the contractor losing the support of both surety bond companies.

Guilt by Association

It turns out that your parents were right. Associating yourself with others are considered to have questionable character in the industry will lead the surety bond underwriter to group you in the same boat. We see this lot with accountants. Accountants that have a reputation for playing in gray areas will make surety bond underwriter question your honestly as well. Everybody wants to save on taxes. However, the willingness to comprise on your obligations to the government is a strong indicator that you will compromise on other obligations as well. It is best to avoid these situations if you need surety bond credit.

Good Character

Unfortunately, much of this article focuses on bad character traits to avoid. However, most contractors have good character. I have many accounts that are some of the most honest and trustworthy people I know. They are good business owners and appreciate their surety bond relationships. They live up to their commitments, share bad news and create a wonderful partnership. It is no coincidence that these accounts make getting contract surety bonds much easier.

“No change of circumstances can repair a defect of character,” Ralph Waldo Emerson. As we said in the beginning, character is hard to underwrite but it is also crucial for supporting contract surety bonds. We look forward to assisting contractors with great character. Contact us anytime!