PaymentBonds
Protect subcontractors, suppliers, and laborers on public construction projects. Required by the Miller Act for federal contracts over $150,000 and by every state's Little Miller Act.
Get Your Payment Bond Quote
Fast approval for federal & state projects
📋 Get Your Payment Bond Quote
Fast approval • Competitive rates
What is a Payment Bond?
A payment bond is a three-party contract guaranteeing that the principal (the contractor purchasing the bond) will pay all subcontractors, suppliers, and laborers who furnish work or materials on a construction project. If the principal fails to pay, the surety (the bonding company) becomes obligated to pay valid claims up to the bond's penal sum—typically 100% of the contract value.
Unlike performance bonds that protect project owners against contractor default on the work itself, payment bonds exist specifically to benefit those who furnish labor and materials but have no direct contract with the property owner. When a general contractor fails to pay, the payment bond provides a direct path to compensation—but only if claimants satisfy strict notice requirements and filing deadlines.
Payment Bond vs. Performance Bond
| Bond Type | Primary Beneficiary | Protects Against |
|---|---|---|
| Payment Bond | Subcontractors, suppliers, laborers | Non-payment by contractor for labor/materials |
| Performance Bond | Project Owner | Contractor default, abandonment, defective work |
On public projects, this distinction matters enormously. Because mechanics liens cannot attach to government property, subcontractors and suppliers would have no security for payment without the statutory bond requirement. The Miller Act and state Little Miller Acts mandate payment bonds specifically to substitute for the lien rights available on private projects.
Federal Requirements Under the Miller Act
The Miller Act (40 U.S.C. §§ 3131-3134) establishes mandatory payment bond requirements for federal construction projects, implemented through the Federal Acquisition Regulation (FAR) Part 28.
Contracts Exceeding $150,000
MandatoryFor all federal construction contracts exceeding $150,000, the contractor must furnish a payment bond with a surety satisfactory to the contracting officer. The payment bond amount must equal the total contract price.
Required Form
- • Standard Form 25A (Payment Bond)
- • Surety must be on Treasury Circular 570
- • Bond amount = 100% of contract price
Protected Parties
- • First-tier subcontractors and suppliers
- • Second-tier subcontractors and suppliers
- • NOT third-tier or lower
Contracts $35,000 - $150,000
FlexibleFor construction contracts in this mid-range, the contracting officer must select two or more alternative payment protections:
Contracts at or Below $35,000
None RequiredNo payment bond or alternative payment protection is required for federal construction contracts of $35,000 or less.
Who Qualifies as a Protected Claimant
Understanding who can make a valid payment bond claim is critical—the Miller Act limits protection to certain tiers
First-Tier Claimants
Direct contracts with the prime contractor—receive the strongest protection:
- Need NOT provide preliminary notice before filing suit
- Must wait 90 days after furnishing before filing suit
- Must file within 1 year of last furnishing
- Receive automatic coverage under the bond
Second-Tier Claimants
Contract with first-tier subcontractors—must satisfy additional requirements:
- MUST provide written notice to prime contractor within 90 days
- Notice must state amount claimed with substantial accuracy
- Must send by registered mail, return receipt requested
- Must file suit within 1 year of last furnishing
Parties NOT Protected Under the Miller Act
Federal courts have consistently held that the following cannot make Miller Act payment bond claims:
Important: Unlike the federal Miller Act's strict two-tier limitation, many state Little Miller Acts extend protection to lower-tier claimants. Georgia's Little Miller Act, for example, provides protection "of all subcontractors and all persons supplying labor, materials, machinery, and equipment." Always verify your specific state's coverage.
State Little Miller Acts
All 50 states plus the District of Columbia have enacted bonding statutes for public construction projects. While modeled on the federal Miller Act, these "Little Miller Acts" vary significantly.
States with Lowest Thresholds
| State | Threshold | Bond |
|---|---|---|
| Massachusetts | $5K (state); $2K (muni) | 50% min |
| Arkansas | $20,000 | 100% |
| California | $25,000 | 100% |
| Texas | $25,000 | 100% |
| Florida | $25,000 | 100% |
States with Higher Thresholds
| State | Threshold | Notable |
|---|---|---|
| Virginia | $500K general | Highest threshold |
| Indiana | $200,000 | 4 separate statutes |
| New Jersey | $200K state | $100K for local |
| Alaska | $100,000 | Sliding scale |
| Nevada | $100,000 | Standard 100% |
States with Reduced Bond Amounts
Most states require 100% payment bonds, but several allow reduced amounts:
Alabama
Only 50% payment bonds—one of lowest in nation
Colorado
Bonds of "not less than one-half" (50%)
Alaska
Sliding scale: 50% under $1M, decreasing for larger
Notice Requirements
The Most Critical Compliance Issue
Failure to provide proper notice within required deadlines is the SINGLE MOST COMMON REASON payment bond claims fail. Notice requirements vary dramatically between federal and state projects and between claimant tiers.
Federal Miller Act Notice Requirements
| Claimant Type | Notice Required? | Deadline | Method |
|---|---|---|---|
| First-tier subcontractor | No | N/A | N/A |
| First-tier supplier | No | N/A | N/A |
| Second-tier subcontractor | Yes | 90 days after last furnishing | Registered mail, return receipt |
| Second-tier supplier | Yes | 90 days after last furnishing | Registered mail, return receipt |
State Notice Variations
Illinois
180 days—more generous than federal
Massachusetts
65 days; 20 days for fabricated materials
Arizona
20-Day Prelim + 90-Day Bond Claim
Nevada
30-Day Notice + 90-Day Bond Claim
Texas
15th day of 3rd month (75-105 days)
California
20-Day Preliminary Notice required
Common Notice Mistakes That Defeat Claims
Making a Payment Bond Claim—Step by Step
Verify Bond Existence and Obtain a Copy
Federal projects: The contracting agency must provide a certified copy upon request by anyone furnishing an affidavit stating they provided labor/materials and have not been paid. Request the bond immediately upon contracting—don't wait for a payment dispute.
Serve Preliminary Notice (If Required)
In states requiring preliminary notice, serve it within the required timeframe—typically 20-30 days of first furnishing labor or materials. Even where not required, sending preliminary notice establishes your presence on the project.
Document Everything
Maintain comprehensive records: signed contracts and purchase orders, invoices with dates and amounts, delivery tickets with recipient signatures, change order documentation, payment history, and all correspondence regarding payment.
Serve the Bond Claim Notice
Send written notice by registered mail, return receipt requested, to the prime contractor at their principal place of business. Include all required information with substantial accuracy. Keep copies of the notice and mailing receipt. Best practice: Also send to surety and project owner.
Allow the 90-Day Waiting Period
The waiting period allows payment to flow through normal channels, gives the surety time to investigate, and permits resolution without litigation. Continue documenting your claim and pursuing payment through normal channels.
File Suit Before Deadline Expires
If payment is not received, file suit before the one-year (or applicable state) deadline expires. For Miller Act claims, suit must be filed in the federal district court for the district where the project is located.
Payment Bond Pricing
Payment bonds are almost always issued together with performance bonds, with a single premium covering both.
Combined Pricing Is Standard
The construction surety industry does not typically charge separately for performance and payment bonds. A contractor paying a 2% premium on a $1 million contract pays $20,000 total for both bonds, not $20,000 each.
Key implication: Reducing bond coverage (e.g., obtaining only a payment bond) generally does not reduce the premium. The surety's risk assessment encompasses the entire contract.
Typical Premium Ranges (Combined P&P)
| Contractor Profile | Rate Range | $500K Contract | $1M Contract |
|---|---|---|---|
| Excellent (strong financials) | 0.5% - 1.5% | $2,500 - $7,500 | $5,000 - $15,000 |
| Good (solid track record) | 1% - 2% | $5,000 - $10,000 | $10,000 - $20,000 |
| Average (limited experience) | 2% - 3% | $10,000 - $15,000 | $20,000 - $30,000 |
| Challenged (poor credit, new) | 3% - 5%+ | $15,000 - $25,000+ | $30,000 - $50,000+ |
Tiered Rate Structures
Many sureties use sliding scales where rates decrease as contract value increases:
Example Tiered Structure
| First $500,000 | 2.5% |
| Next $500,000 | 1.5% |
| Next $2,000,000 | 1.0% |
| Over $3,000,000 | 0.75% |
$3M Contract Calculation
Private Project Payment Bonds
While not legally required, payment bonds on private projects serve valuable functions for owners, lenders, and claimants.
Lien Prevention
A properly recorded payment bond can eliminate mechanic's lien rights against the property in states like Florida and Arizona
Lender Requirements
Construction lenders frequently require payment bonds to ensure subcontractor claims don't create title issues
Project Stability
Payment bonds reduce the risk of work stoppages caused by non-payment disputes downstream
Common Private Bond Forms
AIA A312-2010
The most widely used private form. Defines "Claimant" broadly to include anyone with a direct contract with the Contractor or with a subcontractor.
Explicitly covers water, gas, power, telephone service, rental equipment, and architectural/engineering services.
ConsensusDocs 261
Limits coverage to those with direct contracts with the contractor or with subcontractors having direct contracts with the contractor.
Matches the Miller Act's two-tier limitation for consistent coverage.
Best Practices for Protecting Payment Bond Rights
For Subcontractors & Suppliers
At Project Inception
- • Verify whether a payment bond exists before contracting
- • Obtain a copy of the bond and review its terms
- • Serve preliminary notice immediately (even if not required)
- • Document your contract scope, pricing, and payment terms
During the Project
- • Maintain records of all labor and material furnished
- • Document all deliveries with signed receipts
- • Track all invoices and payments received
- • Monitor payment cycles and aging receivables
When Payment Issues Arise
- • Send informal payment demands promptly
- • Calculate notice deadlines based on last furnishing date
- • Serve formal bond claim notice well before deadline
- • Consult with a construction attorney for significant amounts
For General Contractors
Manage Downstream Payments
- • Establish clear payment procedures and timelines
- • Pay subcontractors promptly after receiving payment
- • Document all payments with proper lien/bond waivers
- • Track potential claim exposure throughout the project
Respond to Claims Promptly
- • Forward all claim notices to your surety immediately
- • Cooperate with surety investigations
- • Document your position with supporting records
- • Avoid admissions that could prejudice defenses
Protect Your Surety Relationship
- • Maintain communication about project issues
- • Notify surety of disputes before claims arise
- • Understand that paid claims affect bonding capacity
- • Reimburse surety promptly for any paid claims
Frequently Asked Questions
Common questions about construction payment bonds
What is a payment bond?
Who does a payment bond protect?
What is the difference between a payment bond and performance bond?
How much does a payment bond cost?
What are the notice requirements to make a payment bond claim?
When can I file suit on a payment bond claim?
What types of labor and materials are covered by payment bonds?
Are payment bonds required on private projects?
Official Government Resource
FAR Part 28: Bonds and Insurance
Federal Acquisition Regulation bonding requirements and procedures
Related Bond Types
Complete your construction bonding requirements
Ready to Get Your Payment Bond?
Protect subcontractors and suppliers on your next construction project. Fast approval for contracts up to $14M through our SBA-approved programs.