How Contractor Insolvencies Are Reshaping the Surety Bond Market in the UK

Contractor insolvency in the UK is not a new challenge, but the scale, speed and frequency of collapses seen in recent years have significantly altered the dynamics of the surety bond market. 

In 2025, the UK construction sector continued to face significant challenges, with over 4,000 construction firms in England and Wales becoming insolvent in the last year alone.

For contractors, employers, brokers and underwriters alike, the effects are wide-ranging and felt deeply. Many face tighter criteria, reduced capacity, higher expectations on bond wording, and an overall closer scrutiny of financial resilience at every level of the supply chain.

These issues are reshaping the surety bond market in the UK. 

Read this blog to learn about the rise in contractor insolvencies, understand what that trend means for performance bond requirements after insolvency events, and discover practical steps construction businesses can take to adapt and protect themselves.

Why Contractor Insolvencies Have Become a Critical Market Issue

The collapse of major UK contractors has acted as a watershed moment for the industry. This was reinforced by the loss of businesses who had hundreds of live projects and extensive public-sector exposure.

As a rule, insolvency creates instability, sending shockwaves through the business and its wider network of creditors and debtors. However, when major failures occur across an industry, the impact is far greater, accelerating significant change and demanding a more flexible, informed, and proactive approach.

1. Increased perceived risk in the construction sector

Sureties are fundamentally risk evaluators. Each insolvency signals that even established, highly visible contractors may be vulnerable to cashflow shortages, rising material costs, delayed payments, fixed-price contracts and interest rate pressures.

The result is higher risk weighting across the sector. This is particularly true for contractors with thin margins, highly leveraged balance sheets or inconsistent working capital.

2. Greater caution from the underwriting community

Underwriters are responding to recent collapses by reassessing their appetite for UK construction risk. This doesn’t mean bonds aren’t available, but it does mean:

• More detailed reviews of financial accounts
• Stronger emphasis on cash generation rather than revenue
• Tighter alignment with project size and complexity
• More questions around project pipeline quality
• Increased scrutiny on supply chain management

In short, the surety bond market UK-wide is behaving more conservatively, even for previously well-supported contractors.

3. Rising claims exposure

Each major insolvency triggers multiple bond calls, either for contract completion or compensation. Sureties assess this historical claims activity when setting future capacity, which means:

• Reduced bonding capacity for certain contractor profiles
• Cautious approval of larger or higher-risk projects
• Bond wordings aligned more closely to international standards

This filtering effect drives a cycle of tightening across the market following insolvency events.

How Insolvency is Changing Performance Bond Requirements

Performance bonds have always existed to protect employers if a contractor cannot meet their contractual obligations. 

However, the expectations around bond structure and wording are shifting due to insolvency-driven risk destabilising the market…

More onerous bond wordings

Employers increasingly request clauses that:

• Provide faster access to funds
• Broaden the definition of default
• Reduce the burden of proof on the beneficiary
• Strengthen rights in the event of contractor insolvency

This is particularly evident in on-demand style requirements, even within projects that previously used purely conditional forms.

Careful evaluation of subcontractor exposure

Underwriters are placing greater emphasis on the contractor’s supply chain resilience, including:

• Use of vetted subcontractors
• Payment practices
• Contractual protections
• Ability to step in if a key subcontractor fails

Every business will have relationships and contracts with other businesses. When one of these falls, the whole chain is destabilised, often triggering insolvencies further down the line. 

Contractors rely on supply chains, and when these are weak, it is a major red flag for a significant increase of insolvency risk. 

Higher expectations around financial disclosure

Offering minimal financial information won’t get you as far anymore. Nowadays, with insolvency risks on the rise, underwriters will require a much deeper look at what’s going on behind the scenes:

• Full-year audited accounts
• Interim management accounts
• Details of secured lending
• Long-term pipeline information
• Evidence of retained earnings and liquidity

This shift reflects the central underwriting question: Can this contractor withstand sudden market stress? 

Practical Steps Contractors Can Take to Strengthen Their Position

For underwriters, detailed information and transparency are the best route to understanding stability. Without it, the risks aren’t clear and underwriters aren’t known for their gambling on unknowns.

Contractors seeking to secure or maintain bonding capacity should consider the following if they want a smooth and successful application:

1. Present high-quality, consistent financial information

Well-prepared accounts, clear forecasts and stable working capital are now essential.

2. Demonstrate strong risk management

Underwriters value evidence of:

• Controls on subcontractor exposure
• Robust project management
• Early warning procedures
• Safety and compliance frameworks

3. Align project size with financial capacity

Taking on projects that exceed financial bandwidth is a warning sign to underwriters – especially during periods of increased insolvency across the sector.

4. Engage early with brokers

Early discussions allow underwriters time to understand the contractor’s business model and mitigate concerns ahead of peak tender periods.

What to Expect from the UK Surety Market

While contractor insolvency in the UK continues to influence surety appetite, the long-term impact is likely to be stabilisation rather than restriction.

Over time, this will result in:

• More resilient contractors securing more capacity
• Stronger project governance across the industry
• Improved risk allocation between employers and contractors

In short, the market is recalibrating rather than withdrawing, so those who adapt early will be best placed to benefit from the new market landscape.

Performance Bonds and Surety Solutions from CG Bonds

If you need support navigating the evolving surety bond market or want to understand how contractor insolvency trends may affect your requirements, the CG Bonds team is here to help.