News

The latest construction figures released in November 2024 show a sector that is still producing work, but with a noticeably weaker forward-order picture.

Office for National Statistics data published on 15 November showed that construction output increased by 0.8% in Quarter 3 2024 compared with the previous quarter, driven by a 2.0% rise in new work. Monthly output also increased slightly by 0.1% in September.*

At the same time, total construction new orders fell by 22.0% in Quarter 3 compared with Quarter 2. Private new housing orders fell by 31.3%, while private commercial orders fell by 20.8%.*

Company insolvency data released later in November also showed that 1,747 companies entered formal insolvency procedures in England and Wales during October. This was lower than both September and October 2023, but the overall level of insolvencies remained significantly above the levels typically seen before the pandemic.**

For contractors seeking bonds, these conditions reinforce why surety underwriters focus not just on turnover, but on the strength and resilience of the business behind each contract.

Turnover Alone Does Not Determine Surety Strength

A contractor may have a healthy level of turnover and a substantial order book, but that does not necessarily mean the business has unlimited capacity to take on more bonded work.

Surety underwriters may also consider:

• profitability and recent trading performance;
• liquidity and working capital;
• net assets;
• existing debt and financial commitments;
• work in progress;
• the quality of the forward order book;
• existing bonded exposure; and
• the size of the proposed contract relative to the business.

Our Surety Underwriting guide explains these areas in more detail.

Falling New Orders Can Change the Risk Picture

A sharp fall in new orders does not mean every contractor is facing weaker prospects. Individual businesses may still have strong pipelines or operate in sectors where demand remains healthy.

However, a weaker broader market can increase competition for available work and place greater importance on contract selection.

For surety underwriters, that can raise questions around:

• how much margin is built into newly won work;
• whether contracts are proportionate to the business;
• how quickly turnover is growing;
• whether cash flow can support additional projects; and
• how much exposure already exists across live contracts.

Our guide to Contract Growth & Surety Capacity looks at how rapid growth can affect future bond availability.

Performance Bonds Bring Contractor Strength Into Focus

Performance Bonds are commonly requested where an employer wants financial protection linked to the contractor's performance of the underlying contract.

Because the surety is taking exposure to the contractor's ability to complete that obligation, the financial strength of the applicant is central to the underwriting decision.

Where a contractor is moving into larger projects, has recently experienced losses or is already heavily committed elsewhere, the surety may require additional information before deciding whether to support the bond.

More information is available on our Performance Bonds page.

Cash Flow Can Matter as Much as Profit

A contractor can be profitable on paper but still experience cash pressure.

Construction businesses may need to finance labour, materials, subcontractors and mobilisation costs before corresponding payments are received.

Retention, delayed certification and long payment cycles can increase that pressure further.

For a surety, strong liquidity and working capital can therefore be just as important as historic profit.

Where current trading differs significantly from the last filed accounts, up-to-date management information can help provide a more accurate picture.

Existing Bond Exposure Must Be Considered

An application for a new bond is not always assessed in isolation.

If a contractor already has several live Performance Bonds, Retention Bonds, Advance Payment Bonds or other obligations, those requirements may form part of the surety's aggregate exposure.

The amount of available headroom can therefore depend on how much existing capacity is already being used.

Our Bond Capacity Explained guide looks at single bond limits, aggregate exposure and remaining capacity.

Not Every Difficult Case Is Unplaceable

A contractor with weaker financials may find that one surety is unwilling to support a requirement.

That does not necessarily mean every market will reach the same conclusion.

Different providers can have different appetites for sectors, contract sizes, financial profiles and bond wording.

A company that has experienced a loss, reduced net assets or rapid growth may still be considered if the wider circumstances support the case.

Our Declined Surety Bonds guide explains why applications can be refused and when an alternative market may potentially consider the requirement.

Good Information Helps Underwriters Understand the Business

Where trading conditions are uncertain, clear information becomes particularly important.

A contractor applying for surety support may be asked to provide:

• latest filed accounts;
• current management accounts;
• details of work in progress;
• the forward order book;
• existing bond exposure;
• contract details; and
• the proposed bond wording.

Where there has been a significant loss, restructuring or other unusual event, a clear explanation can help the underwriter distinguish between a temporary issue and a continuing deterioration.

Our Surety Bond Information Required guide explains the documentation that may be requested.

Resilience Will Remain Important Into 2025

The November figures show why contractors should consider surety requirements as part of wider financial planning rather than waiting until a bond is urgently required.

Businesses entering 2025 with larger tenders, additional projects or recurring bond requirements should have a clear picture of existing exposure, available working capital and future capacity.

A contractor does not need perfect accounts to obtain a bond, but the stronger and clearer the financial story presented to the surety, the easier it is for an underwriter to assess the risk properly.