Surety bond quotes from licensed Australian brokers

The common bond types

Bonds are written for a specific obligation under a specific contract, so the type follows what the principal is asking for. Most Australian construction and infrastructure work uses one or more of these.

• Performance bonds, securing your obligations under the construction contract
• Advance payment bonds, where the principal pays ahead of work being done
• Retention bonds, releasing retention money back into your cash flow
• Maintenance or defects liability bonds covering the post completion period
• Bid or tender bonds, supporting a tender submission
• Statutory and licensing bonds required by some regulators and authorities

How a bond differs from insurance

This distinction matters. An insurance policy transfers risk from you to the insurer. A surety bond is a three party arrangement between you, the principal and the surety, and if the surety pays out under the bond, it has a right of recourse against you. It is closer in nature to a guarantee than to insurance. You are not buying protection for yourself, you are providing security to your customer in a form that does not consume your bank facility.

Freeing up working capital

The practical case for surety is balance sheet capacity. A bank guarantee usually requires cash security or reduces your available facility dollar for dollar. A surety bond typically does neither, so a contractor carrying several million dollars of security across active projects can release meaningful capacity. For a growing business, that capacity is often the constraint on how many projects can run at once. Many contractors run both, using bank guarantees for some principals and surety for others.

What sureties assess

Surety underwriting looks much more like credit assessment than insurance underwriting. Expect to provide audited or reviewed financial statements, work in hand schedules, your contracting history and details of the specific contract being bonded. Sureties look at working capital, gearing, profitability and your track record completing similar projects. A well presented submission makes a real difference, and this is where an experienced broker adds the most value.