News

The latest construction figures released in March 2025 showed that activity remained broadly resilient over the three months to January, even though monthly output dipped at the start of the year.

Office for National Statistics data published on 14 March showed that monthly construction output fell by 0.2% in January 2025, with new work down 0.7% while repair and maintenance increased by 0.4%. Over the three months to January, however, total construction output increased by 0.4%, driven by a 1.4% rise in new work.*

The figures also showed that private commercial new work fell by 6.1% in January and private new housing fell by 1.8%, while adverse weather was reported as one of the factors affecting activity during the month.*

Company insolvency figures released later in March recorded 2,035 registered company insolvencies in England and Wales during February 2025, 3% higher than January, although 7% lower than February 2024. Compulsory liquidations reached their highest monthly level since September 2014.**

For contractors looking to grow into larger contracts, these conditions reinforce the importance of considering whether financial strength, management capacity and existing surety arrangements are keeping pace with the scale of the work being pursued.

Growth Can Be Positive and Still Create Surety Pressure

Winning larger contracts is usually a positive sign for a contractor, but rapid growth can change the underwriting picture.

A business may increase turnover considerably before the resulting profits and retained earnings have had time to strengthen the balance sheet.

At the same time, larger contracts can require more:

• working capital;
• labour and subcontractor funding;
• materials procurement;
• plant and equipment;
• management resource; and
• bond capacity.

Our Contract Growth & Surety Capacity guide explains why growth and available bond capacity need to be considered together.

Contract Size Matters to Underwriters

Surety providers do not assess a bond purely by looking at the bond amount itself.

They may also consider the size of the underlying contract relative to the contractor's previous experience and financial position.

A contractor moving from smaller projects into substantially larger work may therefore be asked to demonstrate:

• experience delivering comparable contracts;
• sufficient management capability;
• adequate working capital;
• appropriate margins;
• the ability to manage increased work in progress; and
• a credible plan for funding mobilisation and delivery.

The larger the step change, the more likely the surety is to want a clear explanation of how that growth will be managed.

Performance Bond Requirements Often Rise With Contract Value

As contract sizes increase, the corresponding Performance Bond requirement may also increase.

Where a bond is expressed as a percentage of the contract value, moving into substantially larger work can create a materially larger surety exposure even if the percentage itself remains unchanged.

That makes it important for contractors to consider the likely bond requirement when tendering rather than waiting until the contract has already been awarded.

The earlier the requirement is understood, the more time there is to confirm whether sufficient capacity is available and whether the proposed wording is acceptable.

Work in Progress Can Be as Important as Turnover

A contractor with strong reported turnover may still have significant commitments across projects that are already underway.

Underwriters may therefore look at work in progress and the wider order book to understand how much operational and financial exposure already exists.

This can include:

• the number of live contracts;
• their remaining duration;
• expected margins;
• outstanding retentions;
• cash requirements;
• major subcontractor commitments; and
• existing bonded obligations.

Our Surety Underwriting guide looks at the wider financial and operational factors that may form part of the assessment.

Existing Bond Exposure Can Limit Future Headroom

A business that already has several live bonds may find that available capacity becomes more constrained as it takes on additional work.

This can happen even where the contractor remains profitable and financially sound.

The issue may simply be that the aggregate exposure already outstanding is approaching the level that the surety is comfortable supporting.

Our Bond Capacity Explained guide covers individual bond limits, aggregate exposure and available headroom.

Facilities Can Help Businesses Plan for Repeat Requirements

Where larger contracts are becoming a regular part of the business, a structured surety bond facility may provide a clearer framework for future requirements.

A facility can potentially establish parameters such as:

• maximum individual bond size;
• overall aggregate exposure;
• the types of bonds that may be considered;
• information required for future applications; and
• ongoing financial review requirements.

This does not mean every future bond is automatically accepted, but it can help both the contractor and the surety understand the expected level of ongoing exposure.

Rapid Growth Can Put Pressure on Cash Flow

One of the most important risks associated with growth is that cash requirements can rise before the benefits of the additional turnover are realised.

Larger projects may require significant expenditure at the start of the contract, while payment may be received later.

A contractor can therefore appear stronger because turnover is increasing while simultaneously experiencing greater pressure on liquidity.

This is one of the reasons surety underwriters may place significant weight on working capital and current management information rather than relying only on historic statutory accounts.

Current Information Can Make a Difference

Where a contractor is growing quickly, filed accounts may no longer reflect the scale or current position of the business.

The surety may therefore request:

• management accounts;
• cash-flow information;
• details of current contracts;
• work-in-progress schedules;
• the forward order book;
• existing bond exposure; and
• information about expected future projects.

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

A Larger Contract Does Not Automatically Mean a Decline

Surety markets can take different views on growth and contract size.

One provider may be uncomfortable with a significant step up in exposure, while another may be willing to consider the requirement if the contractor can demonstrate appropriate experience, liquidity and support.

Where an application is declined, understanding whether the issue is financial strength, contract size, wording or existing capacity is important before approaching another market.

Our Declined Surety Bonds guide explains how alternative markets may consider cases that fall outside one provider's appetite.

Growth Should Be Planned Alongside Surety Capacity

The March figures show that the construction market remained active despite some weaker monthly movements and continuing financial pressure across the wider business environment.

For contractors seeking larger opportunities, the key issue is whether operational and financial capacity are growing at the same pace as contractual commitments.

Considering surety requirements at the tender stage can help identify potential capacity constraints before they become a barrier to signing or mobilising a major contract.