Why Private Construction Projects Pose Unique Bonding Challenges

Private construction projects can be very profitable for contractors, but they present greater bonding risks than public works. Insurance agents can protect their contractor clients by reviewing project agreements for red flags, strengthening their clients’ documentation, and partnering with a flexible, experienced surety like United Casualty and Surety (UCS).

Why Private Construction Projects Pose Unique Bonding Challenges

Private construction has been on the rise for several years. From residential housing developments to large commercial buildings, these projects provide lucrative opportunities for ambitious contractors. 

While private construction can be profitable, these projects pose unique challenges that make the surety bonding process more complicated. Unlike standardized public works projects, private construction often involves more variables, less transparency, and a greater reliance on custom contracts.

As an insurance agent, you play a critical role in helping your contractor clients navigate these complexities. Below, we’ll break down the most common bonding issues and explore how you can support your private construction clients. We’ll also highlight how having a surety partner like USC can set you up for success. 

How Do Private Construction Projects Differ From Public Works?

Before exploring the bonding challenges, let’s take a step back and examine how private projects differ from their public works counterparts. Public construction projects are bound by strict procurement laws and standardized procedures. In contrast, private works can vary dramatically depending on the project owner, developer, and specific deal.

Here’s a closer look at what sets private construction projects apart:

• No standardized specifications –  ​​Public construction projects must follow detailed plans with clear specifications, quality requirements, and government oversight. Public jobs, on the other hand, may or may not have set specifications. Without a standardized framework, contractors may misinterpret what’s required, face disagreements about quality or scope, and ultimately end up shouldering the cost of rework.
• Contract inconsistencies – Public construction contracts typically employ standardized American Institute of Architects (AIA) or ConsensusDocs forms, which have decades of legal precedent. Meanwhile, private projects often rely on custom-drafted or verbal contracts, introducing more variation and increasing the risk of unfavorable clauses. 
• Fewer protections – Federal public projects that exceed $100,000 are backed by the Miller Act. This law requires contractors to secure payment and performance bonds that protect subcontractors, suppliers, and project owners. Many states have “Little Miller Acts” that apply similar bond requirements to state and municipal work.
  Private projects don’t have the same statutory safety nets. Instead, their bond requirements are defined by each contract’s terms. Without a legal bonding mandate, some project owners may overlook surety bonds entirely, exposing their subcontractors, suppliers, and other stakeholders to greater risk. 
• Less owner transparency – Government agencies must publish their budgets and disclose their funding sources for public projects. However, private construction project owners aren’t required to offer the same transparency, making it harder to verify their financial stability and confirm the reliability of their funding.

Due to these differences, contractors and their surety providers must operate with fewer safeguards and more unknowns. 

4 Bonding Risks in Private Construction Projects

When a contractor applies for a private construction project bond, their surety provider must navigate the following challenges:

1. Limited underwriting visibility – Without detailed project scopes and clear specifications, surety bond underwriters have to make more assumptions about the true risk of a private construction project. 
2. Higher default risk – Private project’s variable contract terms increase the risk of payment delays and performance disputes. These issues can impact a contractor's cash flow, making it more difficult for them to pay their subcontractors, suppliers, and surety providers. 
3. Enforcement difficulties – While public project disputes follow established legal processes and statutory timelines, a private project's enforcement relies entirely on contract language and provisions. If a contract’s terms are vague or incomplete, it can be difficult to hold the contractor accountable for poor performance or ensure they pay their subcontractors and suppliers on time.
4. Greater reliance on contractor stability – Since private project owners’ financial details can be murky, sureties typically focus more heavily on the contractor’s financial strength, experience, and judgment. As a result, even capable contractors with strong work histories may face stricter underwriting requirements.

Read More: 6 Essential Bonds To Support Your Contractor Clients' Business Growth

Private Construction Project Example

To showcase the surety risks of private construction projects, let’s take a look at a real-world example. A contractor wants to pursue a $2 million private manufacturing complex project. The project owner provides a high-level outline of the work and has their attorney draft a custom contract.

Halfway through the project, the owner requests several major design changes that alter the project scope considerably. However, they don’t offer a clear change order procedure or a written agreement outlining the new costs and timelines. This causes cash flow issues and payment disputes for the contractor. After several unpaid subcontractors walk off the job, they file a claim against the contractor’s bond.

The contractor’s surety must navigate a complex investigation process. This delays resolution and increases costs for everyone involved, highlighting why sureties’ underwriting standards are stricter with private construction projects. 

What Red Flags Agents Should Watch Out For With Private Construction Projects?

As an insurance agent, you serve as the bridge between your contractor clients and sureties. Thus, understanding the most prevalent risk factors for private construction projects can help you prevent costly problems for all parties involved.

Here are just a few red flags to have on your radar: 

• Vague specifications, contract gaps, or scope creep – If a project description or contract leaves a lot of room for interpretation, ask your client to clarify the scope with the project owner before pursuing their bond. In addition, review their contract closely for missing or one-sided provisions. Every agreement should clearly outline the process for dispute resolution, change orders, payment schedules, and completion deadlines.
• Irregular payment terms – Next, pay close attention to how and when contractors will get paid. Extended payment cycles or “pay-when-paid” clauses can place strain on a contractor’s cash flow. Flagging these terms early on can give your clients a chance to negotiate better payment terms or set aside sufficient working capital to withstand potential payment delays and avoid disputes. 
• Unproven project owner financials – Surety companies prefer projects with owners who are transparent about their financial position, reputation, and construction history. If an owner has limited industry experience or refuses to share proof of funding, advise your client to be cautious. Even the best contractors can face financial strain from slow-paying or insolvent owners.

After addressing these red flags, encourage your contractor clients to gather their documents, including any work-in-progress reports, references from similar projects, audited financial statements, and detailed project budgets and schedules, before approaching the surety.

Additionally, remind your clients that securing a surety bond is worthwhile even when it’s not required. After all, a bond protects their cash flow, reassures their subcontractors and suppliers, and signals to private project owners that they’re serious about meeting their obligations.

Read More: A Growth Opportunity for Agents: Meeting the Bonding Needs of Today’s Small Businesses

How UCS Supports Insurance Agents in the Gray Areas

For the reasons outlined above, private projects often live in the gray areas. If you want to support your contractor clients who choose to pursue these projects, working with the right surety partner can make all the difference.

At UCS, we’re treasury-listed and licensed in all 50 states. More importantly, we’re well-versed in evaluating projects that fall outside the mold. Our flexible underwriting team understands the nuances of private works and regularly underwrites bonds for unique projects with unusual scopes. 

Our team can work directly with your insurance agency to evaluate new projects, review contract terms, and identify the best surety solutions for your contractor clients. We also provide ample resources to help your contractors prepare stronger bond application submissions.

Read More: How Trust in a Surety Partner Impacts Business Growth

Bolster Your Insurance Business With UCS’ Private Construction Project Support

Private commercial projects can be full of promise. They often provide contractors with lavish profits and attractive growth opportunities. However, these projects also involve unique variables that make the bonding process more complex.

As an insurance agent, you can help your contractor clients reap the rewards of private construction while mitigating risk with UCS by your side. We’ll serve as your trusted surety partner, demystifying the complexities of private projects and working diligently to carve a clear path forward for you and your clients.

Ready to differentiate your insurance agency with flexible bonding solutions? Discover how UCS can help you satisfy your contractor clients and grow your business today!

Key Takeaways

1. How do private construction projects differ from public works? – Private construction projects lack standardized specs, often rely on custom contracts, and have fewer statutory protections than their public works counterparts. 
2. Is bonding riskier in private construction? – Yes, sureties typically consider private construction projects riskier due to their limited underwriting visibility, higher default risk, and enforcement challenges.
3. Should contractors obtain surety bonds for private construction projects even when they’re not required? – Yes, surety bonds can help protect a contractor's cash flow, reassure their contractors and suppliers, and enhance their credibility among project owners.

Sources:

Census.gov. Monthly Construction Spending, June 2025. 

https://www.census.gov/construction/c30/pdf/release.pdf

AIA. Who’s Ox Is Being Gored?: A Comparison of ConsensusDOCS and AIA Form Construction

Contract Agreements.

https://content.aia.org/sites/default/files/2017-02/Whose%20Ox%20Is%20Being%20Gored.pdf

Associated General Contractors of America. Miller Act.

https://www.agc.org/miller-act

American Bar Association. Pay-if-Paid vs. Pay-When-Paid Clauses.

https://www.americanbar.org/groups/construction_industry/publications/under_construction/2020/winter2020/pay-if-paid-vs-pay-when-paid/