Bonding capacity estimator

Get a rough idea of the bonded work your balance sheet might support. Enter working capital, net worth and the rule-of-thumb multiples you want to test. The estimator gives an aggregate and a single job figure and, if you enter your backlog and a job, whether the job fits and what extra capital would close a gap.

Your numbers and the surety rule of thumb

Working capital ($)Net worth ($)Working capital multiple (rule of thumb, varies by surety)Net worth multiple (rule of thumb, varies by surety; 0 = not used)Single job as % of aggregate (rule of thumb, varies by surety)Uncompleted bonded backlog ($, optional)Proposed job ($, optional)

Aggregate by working capital: $420,000.00 × 10× = $4,200,000.00
Aggregate estimate: $4,200,000.00, set by working capital
Single job estimate: $4,200,000.00 × 40% = $1,680,000.00
Room left in the aggregate: $4,200,000.00 − $2,900,000.00 = $1,300,000.00
Proposed job against the single job estimate: $1,500,000.00 fits
Backlog plus the job against the aggregate: $2,900,000.00 + $1,500,000.00 = $4,400,000.00, $200,000.00 over
Aggregate both tests need: $4,400,000.00
Extra working capital at 10×: $20,000.00

Sureties set real bonding limits after reviewing the whole company: financial statements, work in progress, experience, character and the job itself. Each multiple here is a rule of thumb you enter; it varies by surety and by contractor, and the starting values are only the worked example's. Working capital is current assets less current liabilities. Backlog is uncompleted bonded work. Enter 0 to leave the net worth multiple, the backlog or the proposed job out.

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This is covered in Procurement, contracting and running the business of the Bid Bond course.

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The formula: multiples you choose

Bonding capacity is usually stated as two limits: a single job limit, the largest one contract a surety will bond, and an aggregate limit, the most bonded work the contractor may have open at once, counted as the work not yet completed. Each surety sets its own method. Some size a program partly as a multiple of working capital or net worth, and the multiple varies by surety and contractor, so this estimator takes every multiple from you.

Working capital = current assets − current liabilities.
Aggregate estimate = working capital × your working capital multiple, or net worth × your net worth multiple if that is lower.
Single job estimate = aggregate estimate × your single job share.
Room left = aggregate estimate − uncompleted bonded backlog.

Worked example 1: working capital only

Working capital is $420,000. For this example only, assume a surety that uses 10 times working capital for the aggregate and 40% of the aggregate (4 times working capital) for a single job. Backlog is $2,900,000 and the contractor wants to bid a $1,500,000 job. These are invented study numbers, the estimator's starting example and the example in the bonding capacity guide.

Aggregate = 420,000 × 10 = $4,200,000.
Single job = 4,200,000 × 0.40 = $1,680,000.
Room left = 4,200,000 − 2,900,000 = $1,300,000.
The job fits the single job figure (1,500,000 is less than 1,680,000) but not the aggregate: 2,900,000 + 1,500,000 = 4,400,000, which is $200,000 over.
Extra working capital at 10 times = 4,400,000 ÷ 10 − 420,000 = $20,000.

Check: 420,000 × 4 = 1,680,000, the same single job figure; 1,500,000 − 1,300,000 = 200,000, the same gap; and (420,000 + 20,000) × 10 = 4,400,000.

Worked example 2: net worth sets the aggregate

Working capital is $300,000 and net worth is $500,000. Test multiples of 10 times working capital and 5 times net worth, with a single job at 40% of the aggregate. Backlog is $1,200,000 and the job is $1,100,000.

By working capital: 300,000 × 10 = $3,000,000. By net worth: 500,000 × 5 = $2,500,000.
Aggregate = the lower, $2,500,000, set by net worth.
Single job = 2,500,000 × 0.40 = $1,000,000.
Aggregate test: 1,200,000 + 1,100,000 = 2,300,000, which fits. Single job test: 1,100,000 is $100,000 over.
Aggregate that both tests need = 1,100,000 ÷ 0.40 = $2,750,000. Extra net worth at 5 times = 2,750,000 ÷ 5 − 500,000 = $50,000. Working capital already supports 3,000,000, so it needs nothing extra.

Check: (500,000 + 50,000) × 5 = 2,750,000, and 2,750,000 × 0.40 = 1,100,000, exactly the job. These are original arithmetic examples, not exam questions, and the multiples are invented. A real surety also weighs the financial statements, the WIP schedule, experience, character and the job itself. The bonding capacity guide covers what underwriters review, and the contractor financial ratios guide works working capital from a balance sheet.

Bonding capacity questions

How is bonding capacity calculated?

Each surety uses its own method and sets the real limits. Some size a program partly as a multiple of working capital or net worth. If a surety used 10 times working capital, $420,000 of working capital would give a $4,200,000 aggregate, and a single job at 40% of that would be $1,680,000.

What multiple should I enter?

The one your surety or bond producer uses for you, if you know it. Multiples are rules of thumb that vary by surety and by contractor, so this estimator builds none in and its starting values are only the worked example's.

What is the difference between single job and aggregate limits?

The single job limit is the largest one contract the surety will bond. The aggregate is the most bonded work open at once, counted as work not yet completed. With a $2,900,000 backlog, a $1,500,000 job fits a $1,680,000 single job limit but is $200,000 over a $4,200,000 aggregate.

Where is this on the NASCLA exam?

The Bid Bond course teaches bonds and surety in its Procurement and Contracting Requirements lesson. That is the largest of the twelve subject areas on the NASCLA outline, with 31 of the 115 scored questions.

See the NASCLA exam outline for all twelve subject areas and their question counts.