Black’s Law Dictionary defines joint sureties as “two or more sureties to the same obligation.” Drilling down further, the definition can be divided into two categories: co-surety, defined as “two or more sureties being named on a bond,” and shared surety, defined as “two or more sureties sharing an account.” In a shared surety situation, only one surety will be named on each bond, with multiple sureties taking turns writing various, independent bonds supporting separate contracts for the same client.

Today, most joint surety arrangements supporting the bond needs of construction companies are of a co-surety nature. Additionally, these agreements almost always are across the full spectrum of the contractor’s bond program. Shared surety often is more aligned with commercial surety bond programs.

Several factors continue to lead contractors and their sureties to co-surety arrangements. Traditionally, multiple sureties on a bond program can provide the contractor with the necessary capacity that they perhaps could not attain with only one surety supporting their bond program. The introduction of an additional surety may be due to the contract price on a single large bond, but over time, ongoing co-surety arrangements usually are tied to the overall aggregate backlog.

The need for additional surety capacity on single projects may be driven by the trend of mega-projects, as the number of global projects exceeding $800 million has more than doubled in the past five years, according to data from the Construction Intelligence Center.

From the perspective of surety markets, partnering with additional sureties can facilitate the diffusion of risk. The key logistics of the co-surety relationship are defined by a co-surety agreement executed among the multiple sureties. In each agreement, one of the sureties is named as the lead surety. The lead surety is on point for any claims handling, but each surety still otherwise individually administers the bond program: underwriting the contractor’s financials, reviewing each bond request independently, billing its own premium and completing other program management responsibilities. In recent years, perhaps as an offset to the advancement of larger construction projects, all of the major surety carriers have dramatically increased capacity levels for single project support, as well as for overall aggregate bond programs.

Because of a recent history of highly profitable experience for sureties, new players have emerged and brought additional capacity to the market. As a result, more than adequate surety capacity continues for contractors with strong balance sheets. For some businesses, their sole surety continues to offer unprecedented aggregate support due to the credit quality of the contractor.

It is important to note that the need for a co-surety is not exclusively based on the need for a “giant” bond or backlog. This simply may be a reflection of the surety carrier’s comfort with the contractor’s bond program needs in relation to its current financial condition.  

Regardless of the reasons for establishing a co-surety or shared surety relationship, the contractor should work with its surety broker to find a surety partner that is the best fit for its business. The process of introducing a co-surety partner to a bond program is the same as introducing the contractor to a new surety; however, the current surety or sureties should be included in the process.

Even with the recent success of the surety marketplace and new capacity, this industry remains highly consolidated. A select few sureties have the appetite and capacity to support the largest global contractors with significant backlogs and the ability to extend meaningful levels of support to mega-projects. These companies are frequent partners and act as co-sureties on multiple accounts, so the transition to or addition of a co-surety relationship should run smoothly. 


David J. Roth is a Chicago-based director of Aon Surety. For more information, call (312) 381-4478, email david.roth@aon.com or visit www.aon.com/construction.