Fractional CFO

Bonding Capacity and the WIP Schedule

Construction contractors need bonding to win larger projects. Bonding capacity hinges on financial statements — and the WIP schedule is the critical input.

By Harry Prabandham3 min · 5 slidesUpdated June 15, 2026

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What Bonding Companies Look For

Surety bonds backstop project completion. Bonding company guarantees the owner that the contractor will finish the job.
Bonding capacity = maximum single-project bond + maximum aggregate (total open bonded work).
Underwriting based on: financial statements (especially balance sheet strength), backlog, project performance history, owner experience, management quality.
Without bonding: locked out of most public works and larger private projects.

The WIP Schedule

Work in Process (WIP) Schedule: list of all open contracts at a point in time.
Per contract: contract amount, costs incurred to date, % complete, total estimated costs, billings to date, over/under billings.
Computed: earned revenue, costs incurred, gross profit earned to date.
Required by every bonding company; underpins your financial statements.
Generated monthly; reconciled to general ledger at close.

Common WIP Mistakes

Optimistic % complete: jobs reported 75% complete when actually 60%. Inflates earned revenue, distorts financial statements.
Underbilling: working ahead of billings (more costs incurred than billed) is fine in moderation, dangerous at scale. Sign of cash flow trouble.
Overbilling: billing ahead of work (more billed than earned). Creates deferred revenue, may trigger §451 timing rules for tax.
Forgetting change orders: signed change orders are part of contract value; unsigned change orders are not.

Balance Sheet Strength

Bonding companies look at: working capital (current assets minus current liabilities), tangible net worth, debt-to-equity ratio.
Typical bonding capacity: 10–20× tangible net worth (single-project), 20–40× tangible net worth (aggregate).
Quality of receivables matters: aged receivables and retentions get discounted in underwriting.
Cash on hand and undrawn credit lines reassure underwriters.

Building Bonding Capacity

Retain earnings: distributions reduce equity, reduce capacity. Build retained earnings before scaling bond requirements.
Audit-quality financials: bondable contractors typically need reviewed or audited financials.
Quality WIP reporting: monthly closes, defensible % complete, clean cost coding.
Build relationships with multiple bonding agents — capacity is partly relationship-dependent.
Need help building bonding-ready financials? Rubric Financial structures construction accounting and WIP reporting for bondable contractors as part of CFO and accounting engagements.

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