How $1B+ data-center and megaproject bonds are built: co-surety, Treasury limits, reinsurance, US 100% vs Canada 50% penal sums, and LC and SDI options.
Education only. This page summarizes US federal and Canadian public rules, and public industry commentary, as published on the date above. Regulations, standard forms and owner requirements change, and every contract sets its own security terms. Verify at the source and with counsel and your surety. This is not legal, insurance, underwriting or financial advice. We quote only public government forms; licensed private bond forms are described, not reproduced.
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Hyperscale data centers, chip plants, LNG terminals, transit lines and hospital programs have one thing in common for bonding: the contract values run into the billions, and the work often runs in parallel. Surety capacity is finite. Each surety limits how much it will write for one contractor on one job, and how much it will hold for that contractor across its whole backlog. Our earlier primer on performance security for large projects and data centers introduces those pressures. This page goes a level deeper into the mechanics: how the penal sum is set, how several sureties share it, and what happens when the number is reduced or replaced.
Three features of large projects strain a single surety at the same time:
Industry commentary describes the same strain. In an April 1, 2026 article, broker Aon wrote that large contractors with multi-market backlogs "are beginning to encounter the limits of aggregate bonding capacity," and that this is "prompting greater use of co‑surety and syndicated surety programs." It quoted its Canadian performance-security lead: "a project valued at $8 billion cannot feasibly be supported by an $8 billion performance bond." That is one broker's view, not a rule, but it frames the question every owner on a megaproject faces: how much security, in what form, from whom.
How much capacity the surety market has for data-center work in total is not publicly disclosed in any official source we reviewed, as of November 2, 2026. Treat any market-wide capacity figure you see as a commercial estimate.
The penal sum caps the surety's liability. It does not measure the owner's likely loss, and it is not a promise that the surety will pay that amount. Under a conditional performance bond, the surety's obligation is triggered by the contractor's default under the contract. The surety's options typically include financing the contractor to complete, arranging a replacement contractor, taking over completion, or paying, depending on the bond form and the law that applies. The penal sum is the ceiling over all of those options combined.
Three practical consequences follow for very large contracts:
For readers new to the term, our glossary covers penal sum, obligee and principal. The point here is narrower: on a megaproject, the penal sum is the single number that decides how many sureties must be involved.
The statute. The Miller Act, now 40 U.S.C. § 3131, requires a performance bond and a payment bond before award of a federal construction contract above the statutory threshold. The performance bond must be "in an amount the officer considers adequate, for the protection of the Government." The payment bond "shall equal the total amount payable by the terms of the contract" unless the officer makes written findings that this is impractical, and it "shall not be less than the amount of the performance bond." The statute says "more than $100,000"; FAR 28.102-1 applies the requirement to construction contracts "exceeding $150,000". Our Miller Act and little Miller Act guide explains the threshold difference.
The regulation. FAR 28.102-2 (FAC 2026-01, effective March 13, 2026) sets the amounts for contracts exceeding $150,000:
| Bond | FAR 28.102-2 amount | Who can change it |
|---|---|---|
| Performance bond | 100% of the original contract price, plus 100% of any increase | The contracting officer, if "a lesser amount is adequate for the protection of the Government" |
| Payment bond | 100% of the original contract price, plus 100% of any increase | Only on a "written determination supported by specific findings" that 100% is impractical; never less than the performance bond |
The surety list. FAR 28.202(a)(1) requires corporate sureties on bonds for work in the United States to appear on Treasury Department Circular 570. The Bureau of the Fiscal Service says Circular 570 "was updated on August 1, 2026"; certificates of authority run to the last day of July and renew each August 1 (31 CFR 223.3(b)). Each listing shows the company's underwriting limitation.
The limit on a single risk. 31 CFR 223.10(a) provides that no certificate holder may write any single risk greater than "10 percent of the paid-up capital and surplus of such company, as determined by Treasury." Two details matter on large jobs:
Rules check, November 2, 2026. The FAR text quoted on this page is the codified FAR at FAC 2026-01. Under the Revolutionary FAR Overhaul, the FAR Council issued model deviation text for Part 28 on August 28, 2025, and many agencies have adopted it in place of the codified text; the Department of Defense's class deviation (DARS 2026-O0005) took effect February 1, 2026. We compared the model text of 28.102-2 and 28.202 and found the same amounts and the same coinsurance and reinsurance conditions; the main wording change is that 28.202 says "must" where the codified text says "shall." Check the agency's own deviation for your solicitation.
How much capacity a given contractor can obtain is a separate question from the Treasury limit. A surety may decline to write up to its regulatory ceiling. Our guide to surety underwriting, bonding capacity and single and aggregate limits covers the contractor side.
Coinsurance, in Treasury's vocabulary, is what the industry usually calls co-surety: two or more sureties sign the same bond. 31 CFR 223.11(a) allows two or more certificate holders to "underwrite a single risk on any bond or policy, the amount of which does not exceed their aggregate underwriting limitations." It adds a condition: "Each company must limit its liability upon the face of the bond or policy to an amount which must be within its respective underwriting limitation."
The federal performance bond form puts that into practice. Standard Form 25 (Rev. 10/2023) says, in its binding clause:
"However, where the Sureties are corporations acting as co-sureties, we, the Sureties, bind ourselves in such sum "jointly and severally" as well as "severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself, jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indicated, the limit of liability is the full amount of the penal sum."
The SF 25 instructions add the mechanics:
For an obligee, those words carry three practical lessons:
We describe the SF 25 in more detail in our SF 25 performance bond wording card. The payment bond form, SF 25-A, follows the same approach.
The other route keeps one surety on the bond and moves the excess behind it. The owner deals with one company on the bond, and the reinsurers stand behind it. On Miller Act bonds, the federal reinsurance forms also give a direct right: under SF 273 and SF 275, the United States may sue the reinsuring company for its reinsured amount after a default, and SF 274 makes laborers and materialmen obligees of the payment bond reinsurance.
31 CFR 223.11(b) sets the rules:
FAR 28.202(a)(3) and (4) add the contracting side. When reinsurance is contemplated, the contracting office "generally" requires reinsurance agreements with the bonds before it decides whether to accept them. If the solicitation allows, the contracting officer may accept the direct writer's bond for the full amount while reinsurance is completed, within the period on the bid form, which "may not exceed 45 calendar days after the execution of the bond." FAR 28.102-1(c) requires all bonds, "including any necessary reinsurance agreements," before notice to proceed.
| Feature | Coinsurance (co-surety) | Reinsurance |
|---|---|---|
| Who signs the bond | Two or more listed sureties | One listed surety |
| Owner's claim | Against each co-surety for its stated share | Against the writing surety for the full penal sum; on Miller Act bonds, also against each reinsurer for its reinsured amount (SF 273, SF 275) |
| Federal paperwork | Limits shown on the face of the bond (SF 25, SF 25-A) | SF 273, SF 274 and SF 275 on Miller Act bonds |
| Treasury test | Each share within that company's underwriting limitation | Writing company's retention and each reinsurer's share within limits |
| Timing on federal bonds | At execution | Within 45 days of execution, or sooner if the agency requires |
Neither route is better in the abstract. Coinsurance gives the owner more than one direct obligor, each for a share. Reinsurance gives the owner a single counterparty for the full amount, whose ability to pay depends in part on its reinsurers; on Miller Act bonds, the reinsurance forms add a direct claim against each reinsurer for its part.
Public rules say how much each co-surety may write. They say little about how the sureties work together. That is set by private agreements among the sureties and by the bond form.
Lead or fronting surety. In many co-surety programs, one surety acts as lead: it handles underwriting coordination, issues the bond package and manages notices and claims, under an agreement with the other participants. Those inter-surety agreements are private. Their terms, including voting on claim decisions and cost sharing, are not publicly disclosed, and owners rarely see them. "Fronting" usually describes a structure where one company issues the whole bond and passes most of the risk to others by reinsurance. In federal terms, that is the reinsurance route above.
Private bond forms. On private and many state and local projects, owners use published standard forms rather than SF 25. AIA A312–2010 performance and payment bonds and ConsensusDocs bond forms are licensed documents. We do not reproduce their text. If your project uses one, check four things in the purchased form and any rider:
Claims in practice. When a bonded contractor defaults, several sureties must agree on a response. That can slow decisions on financing, takeover or a replacement contractor. Owners can reduce friction by asking, before award, who will act for the sureties after a default and how fast they commit to respond. Our surety claims basics cover the general claim process.
Canada has no Miller Act and no Treasury list. Public owners set bond amounts through their tender documents and, in some provinces, through statute.
Federal contracts. Clause E0007C in Public Services and Procurement Canada's Standard Acquisition Clauses and Conditions (SACC) Manual lets the contract require a performance bond (form PWGSC-TPSGC 505), a labour and material payment bond (form 506), both, or a security deposit, each at a percentage the contracting officer inserts. The clause adds: "Any bond must be accepted as security by one of the bonding companies, in accordance with the Guidance on Source Lists of Companies Licensed to Provide Surety Within Canada." PSPC stopped maintaining the SACC Manual in June 2023; its clauses are now shown as archived, and contracts issued with them remain valid. Treasury Board's Directive on the Management of Procurement (s. 4.11.3) separately requires contracting authorities to ensure that any company providing financial security is licensed in the jurisdiction of the eventual contract, under the same source-list guidance. Neither sets a default percentage; the tender does. We found no published federal co-surety rule comparable to 31 CFR 223.11 as of November 2, 2026; ask the contracting authority whether a co-surety bond on form 505 or 506 is acceptable.
Industry practice. Surety Canada's educational pages say performance bonds are "typically in the amount of 50% of the contract amount, but can also be issued for 100%," and that owners typically ask for 50% on labour and material payment bonds. Our primer, linked above, covers those norms and the CCDC 221 and 222 bond forms (2024 editions). Whatever the form, the amount comes from the contract.
Ontario's statutory rule. Ontario's Construction Act, Part XI.1, section 85.1, requires the contractor on a public contract to furnish a labour and material payment bond and a performance bond, each in the prescribed form and from an insurer licensed under Ontario's Insurance Act to write surety and fidelity insurance (s. 85.1(4) and (5)). The owner may still require other bonds or security (s. 85.1(7)). O. Reg. 304/18 sets the details:
| Ontario rule | Text | Source |
|---|---|---|
| Which contracts | Public contracts with a contract price of $500,000 or more | O. Reg. 304/18, s. 12 |
| Default minimum | "the minimum coverage limit" for the labour and material payment bond or the performance bond "is 50 per cent of the contract price" | O. Reg. 304/18, s. 12.1(1) |
| Contracts above $500 million | "the coverage limit shall be the amount specified by the owner, which must be at least $250,000,000" | O. Reg. 304/18, s. 12.1(2) |
| Condition | Applies only if the bonds and any other security, taken together, reflect "an appropriate balance" between adequate security and its cost | O. Reg. 304/18, s. 12.1(3) |
Date check, November 2, 2026. O. Reg. 260/24 added section 12.1 and was filed June 24, 2024. Its large-contract rule came into force on the later of filing and the start of the matching amendment to section 85.1 of the Act (S.O. 2023, c. 21, Sched. 2, s. 2), which e-Laws shows in force on July 1, 2024. The Act and regulation pages on e-Laws were current to October 28, 2026 when we rechecked, and we found no later change to section 12.1.
Ontario's large-contract rule is a public example of a regulator setting a lower floor for mandatory bonds on very large public contracts. It follows an existing rule for alternative financing and procurement (P3) projects: under s. 1.1(4) of the Act and O. Reg. 304/18, s. 3, the minimum coverage limit on those projects is 50 per cent of the contract price if the price is $100 million or less, or $50 million if it is more. On a $1.2 billion Ontario public contract, the 50% default would be $600 million per bond; the owner may instead specify any amount from $250 million up, if the balance test is met.
Holdback is the other Canadian lever. In Ontario, every payer must retain a 10% holdback on services and materials supplied (Construction Act, s. 22(1)). Some or all of it may be held as a letter of credit or a demand-worded holdback repayment bond in the prescribed form (s. 22(4)). Our Ontario holdback explainer, listed under Related reading, covers the timing.
Most hyperscale data centers are built for private owners on private land. The Miller Act does not apply to them, state little Miller Acts generally reach public works only, and Ontario's section 85.1 applies to public contracts. In our review of the sources on this page, we found no US federal or Canadian rule that requires a private data-center developer to take performance or payment bonds. When bonds appear on these jobs, the requirement usually comes from one of three places:
Private owners are free to set penal sums at whatever level the contract states and to accept co-surety, reinsurance or other security. That flexibility cuts both ways. Without a statute, the owner must decide who may act as surety, how limits are allocated and whether a payment bond is needed at all. In US states where unpaid trades can lien private land, a payment bond gives subcontractors and suppliers a route to payment that can reduce lien risk, depending on state law.
Data-center programs add a second capacity demand after construction. Power and grid interconnection agreements often require their own financial security, and those instruments can draw on the same surety and bank capacity as construction bonds. Our page on surety bonds vs letters of credit for utility and interconnection security covers that layer.
On megaprojects, the first reaction to a capacity shortfall is often to lower the penal sum. Federal rules allow it for performance bonds, Ontario allows it above $500 million, and private owners can do as they choose. A reduced penal sum can make a project bondable. It also changes who bears the loss in a bad default.
| Question | With a full penal sum | With a reduced penal sum |
|---|---|---|
| Who funds completion costs above the contract balance? | The surety, up to the full penal sum | The surety up to the lower cap; the owner above it |
| Does the reduction lower the surety's options? | No | No, but it lowers the ceiling on all of them, including takeover |
| Does it affect payment protection? | Federal payment bonds may not be lower than the performance bond | Owners should check whether trades remain adequately protected |
| Does the cap rise with change orders? | On federal work, coverage must rise with 100% of increases | Depends on the contract; a fixed-dollar cap may not rise |
Before agreeing to a reduction, owners commonly test it against a credible default scenario: the cost to finish the work with a new contractor at the stage of greatest exposure, plus delay costs. Ontario's balance test points the same way: the bonds and other security, "taken together," must balance adequacy against cost. A reduced bond plus a parent guarantee, retainage or an LC may give a better result than either alone.
Federal contracting officers face a firmer constraint on the payment side. FAR 28.102-2 lets them lower the performance bond if a lesser amount is "adequate," but a lower payment bond needs written findings, and it can never be lower than the performance bond. The Miller Act payment bond protects subcontractors and suppliers, who cannot lien federal property.
Bonds are not the only form of performance security. On large projects, owners often combine several.
| Instrument | Who pays, and on what trigger | Points to know |
|---|---|---|
| Performance and payment bonds (single or co-surety) | Surety or sureties, up to the penal sum, on contractor default under the bond terms | Surety may complete, finance or pay; payment bond protects trades |
| Irrevocable letter of credit (ILC) | Issuing bank, on demand against the documents the LC specifies | Uses the contractor's bank credit; usually no completion service |
| Parent company guarantee | The contractor's parent, under the guarantee terms | Credit is only as good as the parent's balance sheet; no third-party underwriting |
| Retainage or holdback | The owner keeps part of each payment as cash, released on terms | Ontario 10% holdback; federal retainage up to 10% on unsatisfactory progress |
| Subcontractor default insurance (SDI) | Insurer, to the general contractor, under a two-party policy with deductibles and co-pays | Protects the GC, not the owner; not a statutory bond substitute |
Letters of credit on federal work. FAR 28.204 lets a contractor support a federal bond with alternatives instead of a surety, including an irrevocable letter of credit. FAR 28.204-3 requires a separate ILC for each bond. It must be issued or confirmed by a federally insured institution rated investment grade, and an ILC over $5 million must be confirmed by a second institution unless the issuer had at least $25 million of letter of credit business in the past year. If the contractor does not furnish an acceptable replacement at least 30 days before an ILC's scheduled expiration, the contracting officer must draw on it (FAR 28.204-3(d)). For a $1 billion contract, a full-value ILC would tie up bank credit on a scale few contractors can spare. An LC also pays cash on demand; it does not arrange completion of the work.
Parent guarantees. FAR 28.201 lists acceptable bond security as corporate or individual sureties, or the alternatives in 28.204. A parent guarantee is not on that list for federal bonds. On private work, owners often take a parent guarantee alongside a reduced bond, especially from a joint venture whose members have strong balance sheets.
Retainage. On federal fixed-price construction, FAR 32.103 says retainage "should not be used as a substitute for good contract management," and the clause at 52.232-5(e) caps it at 10% when progress is unsatisfactory. Retainage protects against defective or incomplete work late in the job. It does not replace a completion guarantee in a mid-project default.
Subcontractor default insurance. Many large general contractors manage trade default with SDI rather than subcontract bonds. The National Association of Surety Bond Producers states that SDI is not a replacement for "statutory federal, state, or local bond requirements," whether those apply to the prime or to subcontractors. On a data-center job, SDI may sit beneath a prime performance bond. It does not give the owner a claim. Our primer, linked above, compares SDI and subcontract bonds in more detail.
Owners and developers
General contractors and joint ventures
Brokers
Contract, rules and forms
Canada and alternatives
What is co-surety? Two or more sureties sign the same bond, each taking a share of the penal sum. On federal bonds, Treasury calls this coinsurance, and each company must show its own limit on the face of the bond, within its Treasury underwriting limitation.
Are co-sureties jointly and severally liable? It depends on the bond form. The federal SF 25 makes co-sureties liable severally for their stated shares and uses joint and several wording only so that an obligee can sue all of them together. Private forms and riders can say something different, so check the wording.
What is a Treasury underwriting limitation? It is the largest single risk a Treasury-listed surety may write: 10% of its paid-up capital and surplus as determined by Treasury, under 31 CFR 223.10. Each company's figure appears in Department Circular 570.
Can a federal bond exceed one surety's limit? Yes, if the excess is coinsured or reinsured with other listed companies, each within its own limit. Miller Act bonds must use one of those two routes, with SF 273, 274 and 275 for reinsurance.
Do Canadian megaprojects need 100% bonds? Not usually. The common public norm is 50% performance and 50% labour and material payment bonds. Ontario requires both bonds on public contracts of $500,000 or more and lets owners of contracts above $500 million set a coverage limit of at least $250 million, subject to a balance test.
Do private data-center owners have to require bonds? We found no US federal or Canadian rule that requires it. Owners, lenders and project agreements decide, and they may combine bonds with letters of credit, parent guarantees, retainage and subcontractor default insurance.
