How a Bonding Company Views Change Orders and Claims

1. Ask a surety underwriter what keeps them up at night and you will not hear much about base scope or day-one schedules. They worry about what happens after the ink dries. Construction moves, owners rethink, subs stumble, weather shifts, and everyone tries to adjust without losing the thread. Change orders and claims sit at the center of that dance. A bonding company is not a silent observer. It is the party that has to write a large check if the project derails. That perspective shapes how underwriters evaluate contractors before a bond is issued and how claims professionals respond when problems surface. If you understand how a surety reads change orders and claims, you can build projects and documents that earn trust instead of scrutiny. The surety lens: risk before rights A performance bond is a credit instrument. The bonding company is not promising perfect jobs. It is betting that a particular contractor can absorb the friction of construction without going under. Underwriters price that bet by looking at finances, backlog, management, and history. Tucked inside those categories is a deceptively simple question: how does this contractor manage change and dispute? Two contractors with similar balance sheets can look very different under a surety’s light. One logs potential change orders weekly, has a punchy process for written directives, and clears claims fast even if it means giving a little. The other prefers handshake deals, stacks unsigned tickets in the trailer, and escalates every disagreement into a letter war. The first profile signals control. The second rings with uncertainty. Sureties do not fear change orders per se. They fear unpriced risk and deferred fights that can become liquidity problems six months later. That lens explains some common underwriter habits. They ask about frequency and average size of change orders. They read sample documentation, not just financial statements. They look for contract clauses that make pricing changes practical or impossible. They want to see claims reserves and write-offs in job cost reports. They track whether gross profit moves up or down as change orders land. All of these data points feed one thesis: a contractor who treats change as a normal workload performs, a contractor who treats change as a hope and a prayer defaults. Change orders as a test of management, not luck Most projects change. In vertical construction, change order revenue often lands in the range of 5 to 15 percent of original contract value, sometimes higher on complex renovations. That spread is not inherently bad. Sureties ask two things. First, were the changes documented and priced promptly with clear scope, time, and cost? Second, did the contractor maintain cost codes and forecasts that reflected reality? A well-run change order file has a few marks. Each change traces back to a directive or RFI answer. The contractor priced the work with labor, equipment, and subcontract detail, not a single line lump sum. The time impact analysis connects to the schedule with logic ties that a scheduler can defend. And, most importantly, the field signed daily tickets if work proceeded before the formal change order was approved. This trail does more than win arguments. It shows the bonding company that the contractor will not bleed cash while waiting for paperwork. In contrast, a file full of unsigned tickets and after-the-fact narratives invites skepticism. Sureties know how those stories end. The owner balks, the contractor keeps working, billings lag cost, cash thins, and the job slides into the kind of underbilling that eats working capital. That is how a minor dispute becomes the seed of a bond claim. The lesson is direct. It is not the volume of change that worries a bonding company, it is the mismatch between cost consumption and cash collection. Pricing change and preserving margin Margins often live or die in change orders. If a contractor accepts low markup on added work or fails to include time- related costs, the job’s gross profit erodes. Sureties track that erosion. During quarterly job status meetings, an underwriter will ask why a project’s forecast margin moved from, say, 8.5 percent to 5.2 percent, and whether the drop is tied to unapproved or underpriced changes. They are testing the discipline behind the numbers. Experienced contractors earn credibility by separating direct costs from markups and time-dependent cost. They include supervision, extended general conditions, small tools, bonds, and insurances in the pricing of extended work. They show the math on escalation for material price spikes where the contract allows it. A contractor who can point to the paragraph that authorizes those inclusions stands on firm ground. A bonding company sees that as a proxy for how the contractor will defend margin when it counts.

2. On the other side, there are edge cases. A change may be large but synergistic with the existing means and methods. Perhaps the mobilization is already sunk and crews can absorb the added work with minimal incremental overhead. In such cases, a contractor may sharpen the pencil without harming the outcome, particularly if the change cures a defect in the base scope that would otherwise cost rework. A surety appreciates nuance when it is explained plainly. The key is to document the thinking and avoid the habitual giveaway of time-related costs, because those are the dollars that cushion inevitable surprises. Schedule impacts and the clock the surety watches Time risk sits next to cost risk in a surety’s playbook. The fine print of almost every bond ties performance to contract time. When change orders compress float or force out-of-sequence work, the contractor’s probability of default rises. Underwriters dislike performance curves that show steady cost but slipping schedule, because late jobs invite liquidated damages, which can drain the project’s cash waterfall even if the owner pays for change work slowly. A strong contractor shows a bonding company that every change with a schedule effect has a contemporaneous fragnet in the CPM schedule, not a ghost adjustment. The schedule update reflects new logic and activity durations, not just a revised finish date. The contractor requests days and tracks pending time requests like any other submittal. Even if the owner balks, the contractor preserves the record. That discipline allows a surety to argue that any delay damages are excusable or compensable when a claim ripens. Surety claims departments bring their own schedulers to disputes. They have sat across the table from owners who argue that added scope fit entirely inside available float. If your updates show float already consumed by earlier changes or access issues, and if the updates were sent at the time, not reconstructed later, the surety can defend. If the schedule updates are backfilled after the blowup, you have handed the other side the advantage. The messy middle: constructive change, directed change, and cardinal change Not every change is neat. Owners sometimes refuse to issue a written directive, then insist that the contractor proceed in the name of the schedule. Bonding companies understand that “constructive changes” are real and enforceable in many jurisdictions and under common contract forms. Still, constructive changes are harder to monetize. They rely on good field documentation and a clear link to contract interpretation. A directed change, sent as an order under the changes clause, is the cleanest path. It authorizes work pending final negotiation of price. The contractor proceeds but has a paper lifeline. The surety favors projects and owners who use directed changes instead of forceful verbal directives. It is not just a legal point. When a project culture leans on written directives, cash follows faster. Cardinal changes raise a different risk. At some scale, added work becomes so fundamental that it changes the nature of the contract. If that line is crossed, a contractor may have grounds to stop or seek a new agreement. From a surety’s seat, cardinal change cases are dangerous because they often lead to partial demobilization and a blame storm. The surety wants to be informed early whenever scope creep looks existential. Silence is not neutral. If a contractor waits too long, the surety is left to clean up a site where both schedule and goodwill are spent. Claims as the last tool, not the first move A claim is a formal demand under the contract for time or money that the owner has not agreed to pay. Nobody likes claims, but they exist for a reason. The surety has a simple philosophy. Claims should be well-founded, timely, and proportional. They should be made with the same clarity that a bank would expect in a credit memo. When claims look like a pressure tactic rather than a necessary escalation, underwriters write notes in the file that say “contractor prone to disputes.” That reputation raises bonding cost and lowers capacity. Claims succeed when they build from the same pieces used to price changes: contemporaneous records, time impact analyses, cost coding, and correspondence that shows notice and mitigation. They fail when they rely on reconstructed stories or ignore contractual prerequisites like notice within a set number of days. A bonding company does not require perfection, but it expects a contractor to follow the steps it agreed to when it signed the contract. Violating notice provisions can be fatal in some jurisdictions. If that pattern repeats across jobs, the surety sees a systemic weakness.

3. There is also a cash flow angle. Contractors sometimes treat claims as inventory, letting them stack until the end. This approach can stealthily absorb working capital. Costs hit the job now, recovery comes later. Sureties monitor the ratio of unapproved change orders and claims to working capital. If the number looks high, they start asking about funding sources. An honest conversation about a line of credit or capital plan keeps trust intact. The surety’s role when a claim hits the bond When tempers flare and a performance bond demand arrives, the bonding company steps from the background into the arena. Claims handling varies by surety, but the common goals are to protect the obligee’s project, minimize loss, and respect the contractor’s due process rights. Expect a few consistent moves. The surety will issue a reservation of rights, investigate the facts, and look hard at whether the obligee declared default correctly under the contract. They will ask whether the contractor can cure and whether the obligee helped or hindered performance, including on changes. If termination looms, the surety weighs completion options. Financing the existing contractor, tendering a replacement, or completing the job itself with consultants all sit on the table. The choice depends on remaining scope, the contractor’s cooperation, and the state of the job file. Here is where change order and claim management pays off. If the contractor’s file shows a believable path to finish and realistic change pricing still in play, the surety leans toward financing or facilitating a settlement. If the file is chaos, expect a faster move to replace. The surety answers to math and risk, not sentiment. On payment bonds, the story is similar. Subcontractor and supplier claims often sprout from disputed change directives. If upstream change orders lag, downstream cash stalls. Payment bond claims can explode in number even on profitable jobs. The surety will audit the pay-when-paid clauses, the notice and lien waivers, and the payment status of each sub- tier. A contractor who maintains accurate pay apps and communicates pending change status to subs earns credibility. If a sub billed real added work and the general held payment while waiting on the owner, the surety will push for at least partial release, sometimes bridging with joint checks. The bonding company is trying to stop a ring fire from reaching its performance bond. Practical habits that lower surety anxiety You do not need exotic systems to make a bonding company comfortable. You need ordinary habits done relentlessly well. The best contractors I have worked with follow simple rules. They price change quickly, track time impacts on the live schedule, and never let field tickets go unsigned. They treat notice like an insurance policy and train supers to write three sentences that matter: what changed, when it changed, and what you need to mitigate. When they cannot get a formal change order in time, they request a written directive and log it. They share status with their bonding company before the rumor mill does. Here is a concise checklist you can adapt on most jobs: Keep a living change log that tracks event date, pricing status, approval status, and whether time is included, and tie entries to cost codes. Update the CPM schedule with every change that affects sequence or duration, then send the update to the owner with a short explanation. Enforce field ticket discipline: daily signatures by the owner’s rep when directed to proceed without an approved change order. Send contractual notices within the specified days, even if the number is rough, then refine the claim with backup. Review unapproved change exposure at least monthly and cap field spending on disputed work unless a written directive arrives. None of these steps is novel. The Visit the website friction comes from maintaining them when the site is busy. The bonding company knows that, which is why they give outsized credit to contractors who keep these habits under stress. Contract terms that frame the surety’s view The best management cannot overcome a contract that shifts all risk downstream without relief. Sureties read the form and flag clauses that predict change order and claim trouble. Pay-if-paid provisions in subcontracts, strict no-damages- for-delay in prime contracts, or pricing deadlocks that require “total cost” arguments all move the needle. Underwriters prefer contracts with a clean changes clause, a defined process for directed changes, and a method for interim time extensions. They also look for dispute resolution ladders that keep people talking before attorneys take over. Some owners cap markup on changes at numbers that do not reflect actual overhead, such as 5 percent combined on labor and subs. Others set thresholds for withheld retainage on changed work that feel punitive. These caps shrink cushions that absorb risk. If the rest of the deal is strong, a contractor can live with them, but the surety will ask how the

4. contractor plans to protect indirect cost recovery. An answer that references cost codes for extended general conditions and a clear formula calms nerves. Force majeure and price escalation clauses matter more since supply chain shocks made material pricing volatile. A contract that allows equitable adjustments for material spikes beyond a defined index change is easier to bond. Without that relief, a big change order that triggers new material purchases can lock in losses the moment it is signed. The surety reads that exposure across the backlog, not just on one job. When to pick up the phone to your bonding company Contractors sometimes treat their bonding company like a fire extinguisher behind glass. They only break it in case of emergency. That reflex is understandable and often counterproductive. Calling your surety early does not invite meddling. It gives your underwriter context and lets them advocate internally for capacity when you need it most. A few triggers justify that call. If unapproved change exposure on a single job creeps above 10 to 15 percent of contract value, share the status and your plan. If an owner is slow-paying on directed changes and cash is tightening, explain the bridge you are using, whether that is a line of credit, capital infusion, or controlled slowdown. If a claim is likely, walk your underwriter through the notices sent, the schedule status, and any attempts to settle. Your file will land on a claims manager’s desk in a better light if the introduction comes from you, not a default letter. The same applies when you choose to push back. If a change feels cardinal or a claim rises to the level where you may suspend work under the contract, discuss it with your surety. They can preview the downstream effects and, in some cases, help frame the communication so that rights are preserved without escalating more than necessary. How claims resolve from the surety’s chair Claims rarely end with a perfect winner and loser. Most resolve with negotiated time, partial money, and a schedule to finish. The surety’s pressure points are predictable. They want a clear path to completion, a reliable cash flow plan, and releases that cut off downstream exposure. If a global change order package can settle multiple disputed issues at once, they will push for it, especially if it trades money for days or vice versa in a way that makes finish feasible. Mediation is not a sign of weakness. It is a tool to turn contested narratives into math. Sureties like mediation because it caps defense costs and reframes arguments around recoverable numbers. Present your story with contemporaneous documents and cost records, not emotions. Show how you mitigated even when the owner did not cooperate. Demonstrate that you took each step the contract required. That is how you earn not just a better settlement, but a surety that backs you on the next bond with fewer conditions. Lessons from the field: two brief anecdotes On a hospital renovation, the owner’s rep balked at issuing directed changes, preferring email nudges to keep pace with medical equipment selections that arrived late. The general contractor’s superintendent refused to proceed without daily tickets. He kept a clipboard and walked the floor at 3 p.m. every day for signatures. Over four months, those tickets totaled roughly 1.2 million dollars on a 9 million dollar job. The formal change orders lagged, but the tickets carried enough detail to push interim billings. Cash stayed positive. When the owner later disputed a portion of the work, the surety saw the discipline and quietly backed the contractor through mediation. The claim settled at 92 cents on the dollar, and the project finished within a four-week extension that the schedule updates had supported since month two. Contrast that with a distribution center where the owner added racking coordination late and demanded overtime to maintain the turnover date. The contractor agreed verbally, ran nights for six weeks, and let the project manager “sort the paperwork later.” Later never came. The owner’s finance team denied a big share of the premium hours, arguing that supervision was already included and that sequence was not impacted. Underbillings spiked to 1.8 million dollars. Payroll outpaced receipts. Subs filed payment bond notices. The surety became nervous, pulled job status meetings weekly, and eventually required tighter borrowing base reporting to maintain bonding. The contractor survived, but capacity shrank at the next renewal, exactly when a new opportunity appeared. One undisciplined change season limited a year’s growth. What the bonding company values most

5. At its core, a bonding company values predictability. Change orders and claims will happen. What they watch is how you prevent, capture, price, and resolve them. They look for signs of control: timely notices, realistic schedules, cost reports that do not lie to make today’s meeting quiet, and leadership that chooses settlement when the math says so. They reward candor with support. They penalize surprises with conditions. There is a simple way to check whether your approach meets that standard. Ask if a third party, reading your files with fresh eyes, could understand what happened without you in the room. If the answer is yes, you are managing change and claims the way a bonding company hopes you will. If the answer is no, build the habits that make it so. The benefits go beyond cheaper bonds. They show up in steadier cash, stronger relationships, and projects that end with energy left for the next one. A few words on culture and training Processes live or die with the people who carry them. A surety reads culture between the lines of your documents. If supers understand that a signed ticket is as important as a safe lift, if project engineers can build a time impact fragnet without a three-week scramble, if project managers know the notice windows in their sleep, the bonding company relaxes. Those skills are teachable. Invest in short, repeated training. Make change order status a standing item in internal meetings. Celebrate a cleanly documented denial as much as an approval, because both reflect control. There is also the owner side. When you find owners and construction managers who respect the change process and pay directed changes without turning every item into a wrestling match, keep them close. Your bonding company sees the pattern in your backlog. A portfolio of cooperative partners increases your effective bonding capacity more than a single great quarter ever will. The quiet metric that binds it all: cash conversion Every topic here, from schedule updates to claims, ties back to cash conversion. The surety’s trailing question is always how long it takes you to turn cost into cash when scope shifts. That is why they watch underbilling and overbilling trends. That is why they ask how much of your work-in-progress gross profit sits in unapproved changes. If your cash conversion cycle worsens during change-heavy periods and improves when base scope dominates, you have work to do. If it stays steady across both, your surety knows you can handle volatility. A bonding company does not need your projects to be calm. It needs them to be knowable. Get change orders out of the shadows. Treat claims like instruments, not threats. Build files that can stand on their own. Do that consistently and you will find sureties willing to back your growth, even when the next job is bigger, faster, and messier than the last.