News

Construction figures released in September 2025 showed that activity continued to edge higher, with growth across both the latest month and the three-month period.

Office for National Statistics data published on 12 September showed that total construction output increased by 0.2% in July 2025. The monthly rise came entirely from new work, which increased by 0.3%, while repair and maintenance was unchanged.*

Over the three months to July, total construction output increased by 0.6%. New work rose by 1.0%, while repair and maintenance increased by 0.1%. Infrastructure new work was one of the stronger contributors, increasing by 2.1% over the period.*

The Insolvency Service subsequently reported 2,048 registered company insolvencies in England and Wales during August 2025. This was 2% lower than July but 6% higher than August 2024.**

For contractors and employers continuing to enter new projects, these conditions provide a useful reminder that obtaining a bond is only one part of the process. The wording of the bond can be just as important as its value.

Not All Performance Bonds Operate in the Same Way

A requirement for a Performance Bond may initially appear straightforward.

The employer may request security for a stated percentage of the contract value, but the commercial exposure created by that bond can vary significantly depending on the wording.

Two bonds with the same value can therefore represent very different risks to the contractor and the surety.

Conditional and On-Demand Bonds Are Different

One of the most important distinctions is whether a bond operates on a conditional basis or contains wording that is closer to an on-demand obligation.

A conditional bond will generally require the beneficiary to establish that the circumstances set out in the bond have occurred before payment becomes due.

An on-demand bond can potentially create a more immediate payment obligation where a compliant demand is made in accordance with the wording.

Our Conditional vs On-Demand Bonds guide explains this distinction in more detail.

ABI-Style Performance Bonds Are Common in UK Construction

Many UK construction contracts use wording based on, or similar to, the Association of British Insurers form of Performance Bond.

This type of wording is generally intended to operate as a conditional bond rather than a simple on-demand payment instrument.

However, individual amendments can materially change the position.

It is therefore important to review the actual wording being proposed rather than assuming that a document described as an ABI bond is unchanged.

Small Wording Changes Can Have a Large Effect

A beneficiary may request amendments to standard wording that appear relatively minor but materially affect the surety's exposure.

Examples can include changes to:

• the conditions required before a claim can be made;
• the evidence required to support a claim;
• the expiry provisions;
• automatic extensions;
• the definition of default;
• the effect of variations to the underlying contract; and
• the circumstances in which the surety's liability is discharged.

These points can influence both whether a surety will accept the wording and how the bond is priced or underwritten.

On-Demand Wording Can Be More Difficult to Place

Surety providers may be more cautious where the requested wording creates an obligation to pay following demand without the same level of evidence normally required under a conditional bond.

That does not mean on-demand wording can never be arranged.

However, the surety may look more closely at:

• the financial strength of the applicant;
• the size of the bond;
• the underlying contract;
• the beneficiary;
• the duration of the exposure;
• the exact demand mechanism; and
• the applicant's wider surety exposure.

Different surety markets can also have different appetites for this type of wording.

The Underlying Contract Still Matters

A bond should not be reviewed in complete isolation from the contract it supports.

The surety may need to understand:

• the contractor's obligations;
• the contract value;
• the programme;
• termination provisions;
• the nature of any default mechanism;
• the bond percentage; and
• how and when the bond is intended to expire.

Our Surety Underwriting guide explains the wider factors that may be considered when a bond application is assessed.

Expiry Wording Deserves Particular Attention

One of the practical issues that can create unexpected exposure is the expiry mechanism.

Some bonds contain a clearly stated expiry date.

Others may remain effective until a particular certificate, project milestone or contractual event occurs.

The latter can create uncertainty if the relevant event is delayed.

Where possible, contractors should understand how the bond will be released and what evidence the surety may require before removing the exposure from its records.

Automatic Extensions Can Affect Capacity

Some proposed wordings include provisions that extend the bond automatically if the underlying contract programme changes.

This may be commercially convenient for the beneficiary, but it can also extend the surety's exposure beyond the original expectation.

For contractors with several bonds outstanding, extended liabilities can reduce the headroom available for new requirements.

Our Bond Capacity Explained guide looks at how existing obligations can affect future capacity.

Bond Wording Should Be Reviewed Early

Wording issues frequently become urgent because the bond is requested shortly before contract signing or commencement.

By that stage, the contractor may already be commercially committed to providing security in an agreed form.

Identifying the proposed wording at tender or negotiation stage can provide more time to establish whether:

• the surety can accept it;
• amendments are required;
• an alternative market is needed;
• the beneficiary will accept standard wording; or
• the contract itself needs clarification.

Urgent Wording Requirements May Still Be Possible

Not every requirement is identified early.

Where a bond is needed quickly, having the contract, proposed wording and current financial information available can help the surety assess the position more efficiently.

Our Urgent Surety Bond Requirements guide explains what can help when a bond is required within a short timeframe.

A Decline May Relate to the Wording Rather Than the Contractor

Where a surety refuses a bond, it does not necessarily mean the contractor itself is unacceptable.

The issue may instead be:

• the wording;
• the beneficiary;
• the duration;
• the bond value;
• the demand mechanism; or
• another feature outside that particular surety's appetite.

Our Declined Surety Bonds guide explains why another market may sometimes take a different view.

Commercial Terms and Bond Terms Need to Work Together

The September construction figures showed continued activity across the market, with new work still supporting overall growth.

As contractors continue to enter new obligations, the focus should not be solely on whether the required bond can be obtained.

Understanding exactly what the wording requires can help avoid unexpected liabilities, underwriting delays and capacity issues later in the project.