The Ultimate Performance Bond Requirements Guide
Complete guide to federal Miller Act, 50-state requirements, SBA programs, international bonding, and cost analysis for 2025
Research Completed: November 2025 | Sources: Official federal and state statutes, SBA.gov, Treasury Circular 570, international construction standards
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Performance and payment bonds protect taxpayers, contractors, and suppliers on public construction projects worth over $2 trillion annually. Every U.S. state has enacted bonding requirements for public works, creating a complex patchwork of thresholds ranging from $0 (Arizona and Mississippi require bonds on all projects) to $500,000 (Virginia).
Federal Miller Act:
- $150,000 threshold for mandatory performance and payment bonds
- 100% bond amounts standard for both performance and payment
- Three-tier system: Under $35K (no bonds), $35K-$150K (alternatives), Over $150K (full bonds)
SBA Support (FY 2024):
Performance and payment bonds are surety instruments that protect public funds and downstream parties on government construction projects. Because public property cannot be liened, these bonds serve as the primary security mechanism ensuring project completion and subcontractor payment.
Three-Party Bond Structure
Principal (Contractor)
The contractor who purchases the bond and is obligated to complete the project and pay subcontractors/suppliers.
Obligee (Owner)
The project owner (federal, state, or local government) who requires the bond and is protected by it.
Surety (Bonding Company)
The company that issues the bond guarantee and pays claims if the contractor defaults, then seeks reimbursement.
Performance Bond vs. Payment Bond
Performance Bond
- • Guarantees project completion according to contract terms
- • Protects the project owner from contractor default
- • Covers cost to complete if contractor abandons project
- • Typically 100% of contract value in U.S.
Payment Bond
- • Guarantees payment to subcontractors and suppliers
- • Protects downstream parties from non-payment
- • Substitutes for mechanics liens (not available on public work)
- • Typically 100% of contract value in U.S.
Critical Distinction: Bonds Are Not Insurance
Unlike insurance that protects the policyholder, surety bonds protect third parties. When a surety pays a claim, the contractor must reimburse the surety for the full amount plus legal fees and costs. This creates strong incentive for contractors to complete projects and pay their obligations.
Resolving the Threshold Confusion
The confusion explained: The Miller Act statute (40 U.S.C. §3131) states "$100,000" but the Federal Acquisition Regulation (FAR 28.102-1(a)) requires bonds for contracts "exceeding $150,000." This is NOT a conflict but regulatory implementation under statutory authority.
- • Statutory Authority: 40 U.S.C. §3131(b) requires bonds for contracts "of more than $100,000"
- • FAR Implementation: FAR 28.102-1(a) raised the requirement to "$150,000"
- • Effective Practice: $150,000 threshold has been in effect since at least 2000
- • Key Finding: Miller Act thresholds are EXEMPT from automatic inflation adjustment
Tier 1: Contracts Under $35,000
Requirements: NO BONDS REQUIRED
- • No performance bonds
- • No payment bonds
- • No alternative payment protections mandatory
- • Contracting officer has full discretion
Tier 2: Contracts $35,000 to $150,000
Requirements: ALTERNATIVE PAYMENT PROTECTIONS (Contracting officer selects TWO OR MORE)
Per 40 U.S.C. §3132 and FAR 28.102-1(b), options include:
- • Payment Bond (traditional surety bond)
- • Irrevocable Letter of Credit (ILC) - Given particular consideration
- • Tripartite Escrow Agreement - Contractor establishes escrow with federally insured financial institution
- • Certificates of Deposit - From federally insured institution, executable by contracting officer
- • Security Deposits - Types listed in FAR 28.204-1 and 28.204-2
Key Requirements (FAR 28.102-2(c)):
- • Penal amount: 100% of original contract price
- • Contract increases: Additional 100% of the increase
- • Performance bonds optional but not required for this tier
Tier 3: Contracts Over $150,000
Requirements: FULL PERFORMANCE AND PAYMENT BONDS MANDATORY
Performance Bond:
- • Amount: 100% of original contract price
- • Additional 100% for increases
- • Must cover federal taxes collected/deducted from wages
- • Form: Standard Form 25 (SF 25), revised October 2023
Payment Bond:
- • Amount: 100% of original contract price
- • Minimum: Must equal performance bond amount
- • Covers all persons supplying labor and material
- • Form: Standard Form 25A (SF 25A), revised October 2023
Who Can Sue on Payment Bonds
First-Tier Claimants
Subcontractors/suppliers with direct contracts with prime contractor:
- • NO notice required
- • Must wait 90 days after last work/materials
- • 1-year statute of limitations from last work
- • Venue: US District Court where contract performed
Second-Tier Claimants
Subcontractors/suppliers with contracts with first-tier sub:
- • 90-day notice REQUIRED to prime contractor
- • Notice must include amount claimed and party name
- • Must wait 90 days after notice
- • 1-year statute of limitations from last work
Cost Ranges by Contract Size
| Contract Size | Rate Range | Example Premium | Effective Rate |
|---|---|---|---|
| Under $100,000 | 2.5-3% flat | $75K contract = $1,875-$2,250 | 2.5-3% |
| $100K-$500K | 1.7-2.5% blended | $500K contract = $8,500-$12,500 | 1.7-2.5% |
| $500K-$1M | 1.35-2% blended | $1M contract = $13,500-$20,000 | 1.35-2% |
| $1M-$5M | 1-2.5% sliding | $5M contract = $50,000-$125,000 | 1-2.5% |
| $5M+ | 0.5-2% sliding | $10M contract = $50,000-$200,000 | 0.5-2% |
Factors Affecting Premium Rates
1. Credit Score (80% of pricing)
- • Excellent (700+): 0.5-1.5%
- • Good (650-700): 1.5-2.5%
- • Fair (600-650): 2.5-5%
- • Below Average (550-599): 5-10%
- • Poor (<550): 10-15% + collateral required
2. Financial Strength
- • Net worth and liquidity
- • Working capital position
- • Debt-to-equity ratio
- • CPA-prepared statements (audited best)
- • Strong financials reduce rates 50-75%
3. Experience & Track Record
- • Years in business (<1 year: 3-5%; 5+ years: 0.5-2%)
- • Completed project history
- • Project must be within 1.5x largest completed
- • Prior bonding claims significantly increase rates
4. Project Type
- • Design-Build: +0.5-1% surcharge
- • Standard construction: Base rates
- • Hazardous work: Higher rates
- • Service contracts: Annual renewals
Additional Surcharges
- Time Completion: 1% per month after 12 months
- Maintenance/Warranty: 0.25-0.5% per year beyond included period
- SBA Program: Additional 0.6% of contract if using SBA guarantee
- Funds Control: 0.75-1% if required
- Collateral (ILOC): 0.5-2% annually if required
Important Pricing Notes
- • Performance + Payment bonds issued together for single premium
- • Premium is ONE-TIME payment (except service contracts)
- • Based on FINAL contract amount (adjusts for overruns/underruns)
- • No regional rate variations - rates filed with state insurance commissioners
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All Bond Types Available: Federal Miller Act bonds, State public works bonds, Private contract bonds, Supply contracts, Service agreements, and Maintenance bonds for all 50 states.
Record Performance (FY 2024)
Contract Size Limits (Effective March 18, 2024)
Standard Program Limits
- • Non-federal contracts: Up to $9 million per contract
- • Federal contracts: Up to $14 million with federal contracting officer certification
- • First increase since 2013
Quick Bond Guarantee Program
- • Contract Limit: Up to $500,000
- • NO financial statements required
- • NO aggregate limits
- • Approval within approximately 24 hours (often same day)
Guarantee Percentages
- • 90% Guarantee: Contracts up to $100,000 (all businesses) or any size for socially/economically disadvantaged, HUBZone, 8(a), veteran-owned, or service-disabled veteran-owned businesses
- • 80% Guarantee: All other individual contracts from $100,000 up to $9 million (or $14 million federal)
Eligibility Requirements
- • Must meet SBA size standards for primary industry (typically up to $45M average annual receipts for general building/heavy construction)
- • U.S.-based, for-profit business with legal resident owners
- • Good character; not debarred or suspended from federal contracting
- • Must self-perform at least 15% of contract work
- • Current on all public debts and taxes
- • Unable to obtain bonding through traditional commercial channels without SBA guarantee
Cost Structure
Total Contractor Costs (Example: $1,000,000 contract)
- • SBA guarantee fee: $6,000 (0.6% of contract)
- • Surety premium: $15,000-$30,000 (1.5%-3.0% of contract)
- • Total contractor cost: $21,000-$36,000 (2.1%-3.6% of contract)
Note: Bid bonds have NO SBA fee. The 0.6% guarantee fee applies only to performance and payment bonds.
Bonding Capacity Calculation
Traditional Surety Programs
10x working capital = aggregate bonding capacity
Example: $300,000 working capital = $3,000,000 capacity
SBA Program
20x working capital = aggregate bonding capacity (doubled!)
Example: $300,000 working capital + $100,000 unused credit line = $8,000,000 capacity
Critical Differences from U.S. Practice
United States
- • 100% performance and payment bonds standard
- • Surety bonds issued by insurance/surety companies
- • Conditional bonds - require proof of default
- • Miller Act and Little Miller Acts govern
International Markets
- • 5-10% (up to 20%) typical bond percentages
- • Bank guarantees issued by commercial banks
- • On-demand guarantees - payable immediately
- • FIDIC contracts and ICC URDG 758 govern
Regional Comparison Summary
| Region | Typical Bond % | Instrument Type | Payment Trigger |
|---|---|---|---|
| United States | 100% | Surety Bonds | Conditional (proof required) |
| Middle East | 10% (5-20%) | Bank Guarantees | On-Demand |
| Asia | 5-10% | Bank Guarantees | On-Demand |
| Latin America | 5-10% | Mixed (Bank/Surety) | Mixed |
| Europe | 10% (5-20%) | Bank Guarantees | On-Demand |
| Africa | 5-10% | Bank Guarantees | On-Demand |
Key International Standards
- FIDIC Contracts: Performance bond typically 10% of contract price; widely used in international projects
- ICC URDG 758: Uniform Rules for Demand Guarantees - effective July 1, 2010; provides standardized framework
- On-Demand Guarantees: Payable immediately upon demand without proof of breach (unlike U.S. conditional bonds)
- English Law: Widely chosen as governing law for international contracts; courts uphold autonomy principle strictly
Cross-Border Bonding Challenges for U.S. Contractors
- • 100% vs. Low-Penalty Bonds: U.S. contractors accustomed to 100% bonds face 5-10% international standards
- • Surety vs. Bank Guarantees: Different financial arrangements and relationships required
- • On-Demand vs. Conditional: International on-demand guarantees payable immediately vs. U.S. conditional requiring proof
- • Currency Considerations: Bonds typically required in local currency; exchange rate fluctuations affect values
- • Political Risk: Government stability, arbitrary bond calls, expropriation risks
Before Bidding
- Verify federal ($150K) or state threshold requirements
- Confirm bonding capacity with surety (project within 1.5x largest completed)
- Obtain CPA-prepared financial statements (audited preferred)
- Verify surety is Treasury-listed (federal) or state-licensed
- Consider SBA program if traditional bonding unavailable
After Contract Award
- Execute bond within required timeframe (typically 10 days)
- File bonds with correct contracting entity
- Notify surety immediately of contract modifications
- Provide regular project updates to surety
- Maintain good payment practices with subs/suppliers
During Project Performance
- Document all work performed and materials provided
- Maintain detailed financial records
- Address issues proactively with owner and surety
- Pay subcontractors/suppliers promptly
Building Bonding Capacity
- Increase working capital (10x = capacity traditionally)
- Establish and maintain unused credit lines
- Build track record on smaller projects first
- Maintain credit score above 700 for best rates
Federal Miller Act Resources
State Little Miller Acts
Every state has enacted its own "Little Miller Act" governing performance and payment bonds on state and local public works projects. Thresholds range from $0 (Arizona, Mississippi) to $500,000 (Virginia). Contractors should verify current requirements with their state's procurement office before bidding.
SBA Program Contacts
- • Website: www.sba.gov/osg
- • Email: suretybonds@sba.gov
- • Phone: (202) 401-8275
- • Find authorized agents and surety companies on SBA website
Bid Bond Requirements Guide
Definitive 50-state Little Miller Acts analysis with thresholds, recent legislative changes, and compliance requirements.
Read Guide →Payment Bonds
Learn how payment bonds protect subcontractors and suppliers from non-payment on public projects.
Learn More →Performance & Payment Bonds (P&P Combined)
Single bond covering both performance and payment obligations - commonly required for federal projects under the Miller Act.
Learn More →Contractor License Bond Requirements
Complete 50-state analysis of contractor license bond requirements and recent legislative changes.
Read Guide →Get Your Performance Bond
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Get Bond →Document Information: Research completed November 29, 2025 | Geographic coverage: Federal requirements, all 50 U.S. states and DC, 6 international regions | Verification: Official statutes, FAR, SBA.gov, Treasury Circular 570, international construction standards
Disclaimer: This guide represents the most comprehensive compilation of performance bond requirements available as of November 2025. Performance and payment bond requirements protect over $2 trillion in annual public construction. While every effort has been made to ensure accuracy through official federal and state sources, requirements change periodically through legislation and regulatory amendments. For critical contract decisions, contractors should verify current requirements with official sources, consult legal counsel, and work with experienced surety professionals. This guide is for educational purposes only and does not constitute legal, financial, or bonding advice.