5 Signs Your Project Requires a Surety Bond
When you’re planning a construction or development project, it isn’t always obvious whether a Surety Bond (often a Performance Bond) is necessary, but in many cases, it can make the difference between a smooth, secure project and one exposed to serious financial and delivery risk.
In this blog, we will discuss five strong signals that a Surety Bond is likely a good or essential idea.
What is a Surety Bond?
A Surety Bond is a three-party guarantee involving: the contractor (principal), the employer or project owner (obligee), and a surety provider (bank/insurer).
When correctly structured, the bond gives the employer financial protection, ensuring that if the contractor fails to deliver, becomes insolvent, abandons works, or otherwise breaches contract obligations, there is a surety in place to step in or compensate up to the agreed bond value.
Given this protective role, certain types of projects or circumstances almost always justify (or demand) a bond. Below are common red flags or risk factors that point to a Bond being addressed.
Five Signs Your Project Should Have a Surety Bond
1. High-Value, Complex or Long-Duration Contracts
Large-scale projects carry more risk, whether they are public works, housing developments, major renovations or multi-phase builds. The larger the contract value and the more complex or long-term the works, the greater the potential financial and completion risk if something goes wrong.
Because surety providers often calculate bond amounts as a percentage of contract value (commonly around 10%, though this may vary depending on project size, risk and scope), a bond acts as a safety net that can protect the employer against significant loss; something that contractual obligations or informal trust cannot guarantee.
2. There is a high risk of contractor default, insolvency or abandonment
If there is any uncertainty around the contractor’s financial strength, workload, liquidity or history, or the broader economic/market conditions are uncertain, the risk of default increases. In these circumstances, a Surety Bond provides financial security for the employer should the contractor fail to perform, go insolvent or abandon the project.
Using a Bond shifts part of that risk away from the employer and onto the surety, which is often a financially stable third party (bank or insurer).
3. Funders, lenders or stakeholders require formal security
On many projects, especially those involving public-sector bodies, housing associations, grant-funded work, social housing or financed developments, funders or stakeholders insist on formal financial security to protect their investment.
In those cases, a Surety Bond is often the most accepted and trusted form of security. If you anticipate that funders, clients or stakeholders will demand a Bond, or if the contract terms already reference a Bond, it’s a clear sign that you need one.
4. You want to avoid cash retentions, large retainer sums or tying up working capital
Traditional security mechanisms like cash retention can tie up working capital, slow cash flow or lead to disputes. A Surety Bond offers an alternative: it provides security without requiring the employer or contractor to hold large cash reserves.
For contractors, this can make tender pricing more competitive and frees up vital working capital at project commencement. For employers, it reduces the burden of holding large cash retentions. If retention-based security feels too rigid or risky, a surety bond offers flexibility paired with protection.
5. The project has multiple risk factors; timeline, subcontractors, compliance, quality or defects liability
When a project involves multiple trades, subcontractors, long supply chains, or complex compliance requirements, the likelihood of disputes, defaults or delays rises. In that situation, having a Surety Bond in place gives added protection, especially when combined with robust contract management, oversight and project governance.
As a fallback guarantee, the Bond provides peace of mind that the project owner is not exposed unduly.
How CG Bonds Help When a Surety Bond is Needed
At CG Bonds Surety, we offer a full range of surety solutions, including performance bonds, payment bonds, and other bond types, tailored to the needs and risk profile of each project.
We work with a broad panel of underwriters to find a bond solution suitable for both straightforward and high-risk projects, giving flexibility even for complex developments. We provide guidance on Bond type (e.g. default-based Performance Bond), Bond amount, wording and duration, helping ensure the Bond provides meaningful protection.
At CG Bonds Surety, we’re ready to help you assess needs, guide you through bond options, and deliver a solution aligned with your project’s risk profile.
