Construction Bonds: Performance, Payment & Bid Bonds
The complete guide to the contract bonds that move construction projects forward — bid bonds, performance bonds, and payment bonds — written by Treasury-certified carriers in all 50 states. Below: what they are, who requires them, what they cost, and how to qualify. Ready to start your surety bond application? You pay nothing until your bond is issued.
What Are Construction Bonds?
Construction bonds — often called contract bonds — are a category of surety bonds built for the building industry. Every construction bond is a three-party agreement. The principal is the contractor who buys the bond and promises to perform. The obligee is the project owner (or, on public work, the government body) who is protected by it. The surety is the company that financially backs the contractor's promise and pays valid claims if the contractor fails.
That three-party structure is why a bond is not insurance. An insurance policy is a two-party contract that absorbs the policyholder's losses. A surety bond protects someone else — the owner and the subs and suppliers downstream — and the contractor remains fully on the hook: when the surety pays a claim, the contractor must reimburse every dollar under the general indemnity agreement it signs at underwriting. In effect the surety is extending the contractor a form of credit, which is why bonding turns on financial strength rather than risk pooling. Our bond vs. insurance explainer breaks the distinction down further.
Three forces require construction bonds. The federal Miller Act mandates performance and payment bonds on federal contracts. Each state's "Little Miller Act" does the same for state and local public works above a statutory threshold. And private owners and construction lenders routinely require bonds by contract to protect their investment. If you are weighing project bonds against your contractor license bond—the $25,000 California CSLB bond or a credit-driven Florida contractor license bond, for instance—our contractor bond vs. construction bond comparison shows exactly how the two differ.
Construction Bond Types Compared
Side-by-side comparison of the bonds used on construction projects
| Bond Type | Protects | Typical Amount | When Required |
|---|---|---|---|
| Bid Bond | Project owner (bid integrity) | 5-20% of bid | At bid submission |
| Performance Bond | Project owner (completion) | 100% of contract | At contract execution |
| Payment Bond | Subs & suppliers (payment) | 100% of contract | At contract execution |
| P&P Combined | Owner + subs/suppliers | 100% of contract | Federal $150K+; state varies |
| Maintenance Bond | Owner (warranty defects) | 10-100% of contract | After project completion |
| Subdivision Bond | Government (public improvements) | 100%+ of improvement cost | At plat / permit approval |
| Supply Bond | Buyer (material delivery) | 10-100% of supply value | At purchase agreement |
Federal projects over $150,000 require performance and payment bonds under the Miller Act (40 U.S.C. §§ 3131-3134) and FAR 28.102-1. Federal bid guarantees are set at 20% of the bid, capped at $3,000,000 (FAR 28.101-1).
Read the deep-dive in our types of construction bonds guide, see the full surety bond cost breakdown, or estimate yours with the construction bond calculator.
The Types of Construction Bonds
Seven bonds cover the construction lifecycle, from the bid through the warranty period. Each links to a dedicated guide.
Bid Bond
Guarantees the contractor will honor their bid and furnish the required performance and payment bonds if awarded the contract.
Common Uses:
Performance Bond
Guarantees the contractor will complete the project according to the contract terms, specifications, and schedule.
Common Uses:
Payment Bond
Ensures subcontractors, laborers, and material suppliers are paid for work performed and materials furnished.
Common Uses:
Performance & Payment Bond (Combined)
A single application for both protections — mandatory on federal projects above the $150,000 FAR threshold under the Miller Act.
Common Uses:
Maintenance Bond
Guarantees the contractor will repair defects in workmanship or materials during the warranty period after completion.
Common Uses:
Subdivision Bond
Guarantees a developer will install required public improvements — roads, sidewalks, utilities — as a condition of plat approval.
Common Uses:
Supply Bond
Guarantees delivery of materials or equipment to a public or private buyer according to the purchase agreement.
Common Uses:
Comparing two specific bonds? See performance bond vs. payment bond and performance bond vs. bid bond. General contractors should also review general contractor bonds.
Construction Bond Requirements: Federal & State
Federal Projects — The Miller Act
The federal Miller Act (40 U.S.C. §3131(b)) requires a contractor on a federal construction contract over $100,000 to furnish both a performance bond and a payment bond. In practice the operative figure for procurement is the Federal Acquisition Regulation threshold of $150,000 (FAR 28.102-1(a)): above it, bonds are mandatory; contracts between $35,000 and $150,000 require alternative payment protection instead (FAR 28.102-1(b)).
Clause FAR 52.228-15 sets both bonds at 100% of the contract price and requires the surety to be listed on Treasury Circular 570. Federal bid guarantees are set at 20% of the bid amount, capped at $3,000,000 (FAR 28.101-1 / 52.228-1). Crucially, payment-bond claimants face hard deadlines under 40 U.S.C. §3133: a claimant without a direct contract with the prime must give written notice within 90 days of last furnishing labor or material, and any suit must be filed within one year.
State Projects — "Little Miller Acts"
Every state mirrors the Miller Act for its own public works, but the dollar trigger and exact rules vary dramatically. The verified thresholds below show the spread — always confirm the current statute for your specific project, since several are scheduled to change.
| State | Bond Required When | Statute |
|---|---|---|
| California | Public works contracts over $25,000 | Civil Code §9550 |
| Florida | State contracts over $100,000 (local may exempt ≤ $200,000) | Fla. Stat. §255.05 |
| New York | Mandatory floor at roughly $100,000 | State Finance Law §137 |
| Illinois | $150,000 now, dropping to $50,000 on Jan 1, 2029 (IDOT $500,000) | 30 ILCS 550/1 |
| Washington | Public works contracts over $150,000 | RCW 39.08.010 |
| Colorado | Public contracts over $50,000 | C.R.S. §38-26-105 |
| Georgia | Contracts over $250,000 (effective July 1, 2025; was $100,000) | O.C.G.A. §13-10-40 |
| Arizona | All county/city/town public works — no dollar threshold | A.R.S. §34-222 |
| North Carolina | Project total over $300,000 and individual contract over $50,000 (state agencies over $500,000) | N.C.G.S. §44A-26 |
| Texas | Governed by Texas Government Code Chapter 2253 — see our Texas bond requirements guide | Tex. Gov't Code Ch. 2253 |
This 10-state sample is drawn from our Little Miller Act bond thresholds for all 50 states and D.C. Thresholds are current to the dates noted and subject to legislative change; verify the controlling statute before bidding. Treasury requires every surety on a federal bond to hold a Certificate of Authority under Treasury Circular 570 (31 U.S.C. §§9304–9308).
How Much Do Construction Bonds Cost?
For performance and payment bonds, premium is a percentage of the contract price, and the single biggest driver of that percentage is the contractor's credit and financial strength. Bid bonds, by contrast, are typically issued free of charge to prequalified contractors. The figures below are industry estimates consistent with our surety bond cost guide — your quote depends on your full underwriting profile.
Premium by Credit Tier (on a $1,000,000 contract)
| Credit / Financial Profile | Approx. Premium Rate | Cost on $1M Contract |
|---|---|---|
| Strong credit, established | 0.5% – 1.5% | $5,000 – $15,000 |
| Mid-tier credit | 1.5% – 2.5% | $15,000 – $25,000 |
| Weaker credit / newer contractor | 3%+ | $30,000+ |
| Bid bond (prequalified) | Typically free | $0 |
Because premium is simply the contract price multiplied by your rate, a quick rule of thumb scales to any job: roughly $1,000 per $100,000 of contract at 1%, $2,000 at 2%, and $3,000 at 3%. So a $500,000 contract runs about $5,000–$15,000 and a $5,000,000 contract about $50,000–$150,000, before any sliding-scale discount on larger bonds.
For the full pricing breakdown — premium by individual credit-score tier (750+ down to under 600), a complete cost-by-project-size table, the five factors that move your rate above 1%, and a worked example — see our dedicated construction bond cost guide, the canonical deep-dive on what these bonds cost.
For a personalized number, run your figures through the construction bond calculator or the performance bond calculator, and read the methodology in how to calculate a performance bond.
How to Qualify for Construction Bonds
Sureties underwrite construction bonds on the "three Cs" — plus a fourth that often decides the deal. Together they tell the surety whether you can finish the job and stand behind it.
Character
Your reputation, references, project history, and how you have handled past obligations and disputes.
Capacity
The operational and financial ability to perform — equipment, staffing, and a track record on jobs of similar size and scope.
Capital
Working capital and net worth. Strong, liquid financials are the single biggest lever on your rate and your bonding capacity.
Credit
Personal and business credit history of the owners. Weaker credit raises the rate but rarely closes the door on its own.
Documents Underwriters Typically Request
- Business and personal financial statements (often two to three years)
- A current work-in-progress (WIP) schedule showing open contracts and costs to complete
- Completed-project history and references from owners and subcontractors
- Bank and trade references and a signed general indemnity agreement
Denied or just starting out? The SBA can help.
The SBA Surety Bond Guarantee Program backs bid, performance, payment, and ancillary bonds on contracts up to $9,000,000 (and up to $14,000,000 on federal contracts when the contracting officer certifies). The SBA guarantees the surety 90% of losses on contracts of $100,000 or less and for 8(a), HUBZone, SDB, and veteran-owned firms, otherwise 80%. The small-business fee is 0.6% of the contract price (bid bonds are free), and the QuickApp path covers contracts up to $500,000. These limits rose from $6.5M/$10M on March 18, 2024.
The Construction Bonding Lifecycle
Bonds attach to a project in a predictable sequence. Understanding the timeline helps you line up underwriting before you need it. See the full process in our surety bond application guide.
- 1
Prequalification
The surety reviews your financials and history and sets your single-job and aggregate bonding capacity. This is your bond line of credit.
- 2
Bid Bond
You submit a bid bond with your proposal, guaranteeing you will sign the contract and furnish the final bonds if you win.
- 3
Award
You are selected. The surety confirms underwriting and prepares the final bond forms for the specific contract.
- 4
Performance & Payment Bonds
At contract execution you furnish the P&P bonds, each at 100% of the contract price on public work.
- 5
Construction
You perform the work. The bonds remain in force; the surety monitors larger jobs and may require status updates.
- 6
Completion & Acceptance
The owner accepts the work. Performance obligations close out and final payment is released.
- 7
Maintenance / Warranty
A maintenance bond may carry forward to cover defects for a warranty period — often one to two years after completion.
Public vs. Private Projects
The rules that govern your bonds depend on who owns the project. Public work is bonded by statute; private work is bonded by contract. This matrix shows the practical differences.
| Factor | Public Projects | Private Projects |
|---|---|---|
| Who requires the bond | Statute (Miller Act / Little Miller Acts) | Owner or lender, by contract |
| Bonds typically required | Bid, performance, and payment | Negotiable — often performance & payment |
| Bond amount | Usually fixed at 100% of contract | Set by agreement; can be partial |
| Sub/supplier remedy if unpaid | Payment bond claim (no lien on public land) | Mechanic's lien and/or payment bond |
| Surety eligibility | Federal: Treasury Circular 570 carriers | Any admitted surety the owner accepts |
What Happens When a Claim Is Filed
Performance Bond Claims
When an owner believes the contractor has defaulted, it notifies the surety, which investigates whether a true default occurred. If confirmed, the surety chooses a remedy: complete the work itself, finance the original contractor to finish, arrange a replacement contractor (a takeover or tender), or pay the owner up to the bond's penal sum. The contractor and its indemnitors then reimburse the surety for every dollar paid — that is the core difference from insurance.
Payment Bond Claims
A payment bond gives unpaid subcontractors and suppliers a direct claim against the surety. On federal work the deadlines under 40 U.S.C. §3133 are strict:
- 90 daysA claimant without a direct contract with the prime must send written notice to the prime contractor within 90 days of the last day it furnished labor or material.
- 1 yearAny lawsuit on the payment bond must be filed within one year of that last date of labor or material. Miss it and the claim is barred.
State Little Miller Acts set their own notice and suit periods, so always confirm the deadlines for the project's jurisdiction. For how the two bonds differ in scope, see performance bond vs. payment bond.
General Contractor vs. Subcontractor Perspective
As the General Contractor
On public work you, the prime, furnish the Miller Act performance and payment bonds to the owner. To protect yourself, you can require your subcontractors to bond back — providing their own performance and payment bonds — so a sub's default does not threaten your bond or your schedule. Strong bonding capacity also lets you bid bigger projects. Review general contractor bonds for the full picture.
As the Subcontractor
You may be asked to provide subcontractor performance and payment bonds to the GC. Building a bonding program signals financial strength, opens the door to more (and larger) contracts, and protects your own lower-tier suppliers. If the GC fails to pay you, the project's payment bond — not a lien on public land — is usually your remedy. Establishing your own line through a license bond and project bonds builds the track record sureties reward.
Before You Bid: State License Bonds
Project bonds get you onto a job; many states first require a contractor license bond just to hold your license.
Frequently Asked Questions
What are construction bonds?▼
What is the difference between a construction bond and a contractor license bond?▼
When are construction bonds required by law?▼
How much do construction bonds cost?▼
Can I get bonded with bad credit or as a first-time contractor?▼
What is bonding capacity and how is it determined?▼
What are the three main construction bonds and how do they work together?▼
What happens when a performance bond claim is filed?▼
How does a payment bond claim work — what are the deadlines?▼
Do I need bonds as a subcontractor, or only as the general contractor?▼
Who issues construction bonds and which carriers qualify for federal work?▼
How long does it take to get a construction bond?▼
Related Bonding Resources
Performance & Payment Bonds (Combined)
Get both bonds with one application. Required for federal projects over $150K.
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Performance, payment, and bid bonds from Treasury-certified carriers in all 50 states. No payment required until your bond is issued and in hand.
All content is researched from official state and federal sources (.gov) and verified before publication. BuySuretyBonds.com works with Treasury-certified, A-minimum rated surety carriers serving all 50 states.