What is Proof of Bonding Capacity?
When a project owner or a general contractor wants to pre-qualify someone for a construction job, they’ll often request a bondability letter. Sometimes called a “statement of bondability” or “proof of bonding capacity,” it is a letter from a surety provider that provides assurances to the project owner or general contractor that the person submitting the letter has been underwritten and is pre-approved for a bonding capacity necessary for the project. It’s important to note that bondability letters, statements of bonding capacity, are non-binding. The letter doesn’t obligate a surety to issue bonds up to that size, it’s closer to an indication of the level of support a surety provider has given.
To better help California contractors take the initial steps towards growing their bonding capacity and successfully bid on the projects they want, we’ve assembled this guide to help understand statements of bondability and when, and how they’re used.
The Guide to Increase Your Surety Bond Capacity
To help California contractors understand bonding capacity and how to increase it, we’ve assembled this handy guide below to help you navigate the processes along with tips for increased capacity.
What Does a Proof of Bonding Letter Contain?
Proof of bonding capacity, or bondability letter, usually contains simple and straightforward information to assure the project owner or general contractor. A typical statement of bondability includes both the single project limit and total aggregate bonding capacity of the company and some basic information on the surety company. It’s important to note that if receiving a bondability letter it should be written on the letterhead of the surety provider the contractor works with to ensure it’s valid and that it was signed on behalf of a surety rather than a surety agent. The letter can also be notarized to prove its authenticity and that the bonding capacity listed was determined by a surety provider.
Are Bonding Capacity Letters Required?
Proof of bonding capacity isn’t always required, except for public works projects and schools (by law in California), but that doesn’t mean you should only request or produce one when asked to. A statement of bondability can function as a pre-qualification tool for subcontractors, helping a general contractor to ferret out the subcontractors who wouldn’t be a good fit for a specific project.
Also, a bonding capacity letter can be used as a marketing tool by contractors. For example, if the surety you work with is well known then it gives you clout to have a letter of bondability from them and demonstrates the high level of review your financials, accounting practices, and past work experience has gone through. A statement of bondability may not always be required, but it’s good to have and to be prepared with one that has been issued within 90 days.
How to Get a Bondability Letter
To get a bondability statement or letter of bonding capacity you’ll need to talk with your surety agent and have it provided with the surety’s approval. We at CSBA offer our clients statements of bondability when they need them and encourage them to use them even if not required for any particular job as pre-qualification tools and to market themselves. We are committed to helping California contractors use the tools at their disposal to secure their business goals and build their bonding capacity by guiding them through the opportunities to do so, as well as publishing regular articles to help in that effort.