During my 20-plus years in the surety industry, I have been asked one question more than any other: “What is my bonding capacity and how is it determined?” Unfortunately, this simple question is the most difficult one for a surety agent to answer and merits a clear explanation.

Bonding capacity is the maximum amount of surety credit a surety company will provide to a contractor. It is generally expressed in terms of the largest single project the surety would be willing to issue and the maximum amount of contract backlog a contractor can hold. This is referred to as single job limit and aggregate limit.

For example, a contractor with a $5 million single/$25 million aggregate limit could expect that bonds requested for up to $5 million would be “pre-approved” by the surety, provided the backlog of the company at the time of bidding is $20 million dollars or less. In other words, if the job would push the company over the aggregate limit of $25 million, then it would have to be submitted for review and approval by your surety underwriter. Bonding capacity is merely an estimated capacity limit designed to allow your surety agency to meet your company’s needs. It is not the absolute limit of your company’s ability to bond a job.

How do surety underwriters determine single and aggregate limits? There is no one-size-fits-all answer to this question, but there are some common elements to the underwriting process that most surety companies use: the quality of the organization, the quality of financials, and the contractor’s overall experience.