Payment and Performance Bonds
Miller Act Compliant | Single Premium | Payment Performance Bond | Both Bonds Included
Quick Value Props:
- ✓Combined P&P for federal projects over $150,000
- ✓Single premium covers both bonds
- ✓Treasury-listed carriers
- ✓State Little Miller Act compliant
📋 Get Your Performance Bond Quote
Fast approval • Competitive rates
What Are Payment and Performance Bonds?
Payment and performance bonds (also called "performance and payment bonds" or "P&P bonds") are two separate surety bonds required together on most public construction projects. The payment performance bond is issued simultaneously for a single premium.
Performance Bond: Guarantees the contractor will complete the project according to contract terms. Protects the project owner.
Payment Bond: Guarantees subcontractors, suppliers, and laborers will be paid for their work and materials. Protects those doing the work.
Why They're Required Together
The Miller Act requires BOTH bonds on federal construction projects over $150,000. You cannot get one without the other on federal work. This payment and performance bond requirement ensures complete project protection.
| Bond | Who It Protects | What It Guarantees |
|---|---|---|
| Performance Bond | Project Owner (Obligee) | Project completion per contract |
| Payment Bond | Subcontractors & Suppliers | Payment for labor and materials |
Key Benefit: Though they serve different purposes, you pay ONE premium for BOTH bonds. It's the same cost whether you need one or both.
Miller Act Requirements for P&P Bonds
The Miller Act (40 U.S.C. §§ 3131-3134) is the federal law requiring performance and payment bonds on public construction contracts.
Federal Requirements (Miller Act)
| Requirement | Specification |
|---|---|
| Threshold | Contracts over $150,000 |
| Performance Bond Amount | 100% of contract value (or amount acceptable to contracting officer) |
| Payment Bond Amount | 100% of contract value (equal to contract price) |
| When Required | Before contract award |
| Surety Requirement | Treasury-listed (T-listed) surety company |
Note: The statute says $100,000, but FAR Part 28 implementation sets the practical threshold at $150,000.
Contracts $35,000 - $150,000
For smaller contracts, contracting officers select alternative protections:
- Irrevocable letters of credit
- Payment bonds
- Tripartite escrow agreements
What Happens If You Don't Have P&P Bonds?
Without proper bonding:
- You cannot be awarded the federal contract
- Your bid will be rejected
- The contract goes to the next qualified bidder
- Even if bonds weren't in the solicitation, they're automatically required (Christian Doctrine)
State Requirements for P&P Bonds
All 50 states have enacted "Little Miller Acts" requiring performance and payment bonds on state and municipal construction projects.
State Threshold Comparison
| State | Threshold | Bond Amount | Key Difference |
|---|---|---|---|
| Arizona | $0 (all projects) | 100% of contract | No threshold—all public work bonded |
| California | $25,000 | 100% of contract | Broader subcontractor protection |
| Texas | $25,000 | 100% of contract | 90-day notice requirement |
| Washington | $35,000 | 100% of contract | 30-day claim window |
| Colorado | $150,000 | 100% of contract | Matches federal threshold |
| Nevada | $100,000 | 50% minimum | Lower bond percentage allowed |
| Minnesota | $175,000 | 100% of contract | Higher threshold |
| Florida | $200,000 | 100% of contract | Extended notice periods |
Important: State thresholds and requirements vary significantly. Always verify the specific requirements for your project's location.
Payment and Performance Bond Cost
Payment and performance bond cost is priced together as a single combined premium. Performance bond cost and payment bond cost are combined - you do not pay separately for each bond. Payment and performance bond rates range from 0.5% to 3% of contract value.
Performance Bond Rates and Pricing
| Credit Score | Rate | $100K Contract | $250K Contract | $500K Contract | $1M Contract | $2M Contract |
|---|---|---|---|---|---|---|
| Excellent (750+) | 0.5%-1.5% | $500-$1,500 | $1,250-$3,750 | $2,500-$7,500 | $5,000-$15,000 | $10,000-$30,000 |
| Good (700-749) | 1.5%-2% | $1,500-$2,000 | $3,750-$5,000 | $7,500-$10,000 | $15,000-$20,000 | $30,000-$40,000 |
| Fair (650-699) | 2%-2.5% | $2,000-$2,500 | $5,000-$6,250 | $10,000-$12,500 | $20,000-$25,000 | $40,000-$50,000 |
| Poor (<650) | 2.5%-3%+ | $2,500-$3,000+ | $6,250-$7,500+ | $12,500-$15,000+ | $25,000-$30,000+ | $50,000-$60,000+ |
Tiered Performance Bond Rates (Larger Projects)
Many sureties use tiered performance bond rates that decrease as contract size increases. The payment and performance bond rate structure rewards larger projects:
| Contract Value | Rate Example |
|---|---|
| First $500,000 | $25 per $1,000 (2.5%) |
| Next $2,000,000 | $15 per $1,000 (1.5%) |
| Next $2,500,000 | $10 per $1,000 (1.0%) |
| Over $5,000,000 | $7.50 per $1,000 (0.75%) |
Example Calculation:
$3,000,000 contract:
- First $500K × 2.5% = $12,500
- Next $2M × 1.5% = $30,000
- Next $500K × 1.0% = $5,000
Total Premium: $47,500 (effective rate: 1.58%)
One Premium = Both Bonds
Critical Point: Whether you need:
- Just a performance bond
- Just a payment bond
- Both performance AND payment bonds
The premium is the same. There is no discount for needing only one bond.
How to Get Performance and Payment Bonds
Application Process
- • Basic business information
- • Contract/bid details
- • Credit authorization
Requirements scale with bond size (see table below)
Surety evaluates the "Three Cs":
- • Character
- • Capacity
- • Capital
- • Sign General Indemnity Agreement
- • Pay premium
- • Receive executed bonds
Documentation Requirements by Bond Size
| Bond Size | Documents Required |
|---|---|
| Under $250K | Short application, credit check, contract copy |
| $250K-$750K | Financial statements, project history, bank reference |
| $750K-$1.5M | CPA-prepared financials, WIP report, personal financial statements |
| Over $1.5M | Audited financials, organizational documents, personal guarantees |
Approval Timeline
| Bond Size | Typical Timeline |
|---|---|
| Under $250K | 24-48 hours |
| $250K-$750K | 2-5 business days |
| $750K-$1.5M | 5-7 business days |
| Over $1.5M | 7-14 business days |
Tips for Faster Approval
- Keep financials current - Outdated statements delay underwriting
- Use CPA-prepared statements - Audits/reviews preferred over compilations
- Maintain clean credit - 700+ score qualifies for best programs
- Build surety relationship - Repeat clients get faster processing
- Submit complete package - Missing documents cause delays
Who Do P&P Bonds Protect?
Performance Bond Protection
The performance bond protects the project owner (obligee):
- Guarantees project completion
- Covers cost to finish if contractor defaults
- Protects against substandard work
- Ensures contract terms are met
If contractor defaults, the surety will:
- Finance the original contractor to complete, OR
- Hire a replacement contractor, OR
- Pay the owner to arrange completion
Payment Bond Protection
The payment bond protects subcontractors and suppliers:
| Protected Party | Notice Required? |
|---|---|
| First-tier subcontractors | No |
| First-tier suppliers | No |
| Second-tier subcontractors | Yes - 90 days |
| Second-tier suppliers | Yes - 90 days |
| Lower-tier parties | NOT protected (federal) |
State Difference: Many state Little Miller Acts protect ALL tiers, not just first and second tier.
What Happens When the Contract Changes?
When the contract price increases during the project:
- Bond amount increases automatically
- Additional premium is owed (prorated)
- Surety bills for the overrun at project end
Example:
$1M contract with 2% rate = $20,000 premium
Change orders add $200K → Additional premium of $4,000 owed
When the final contract is less than bonded:
- Some premium may be refundable
- Depends on surety policy
- Typically prorated based on final contract value
Maintenance/Warranty Extensions
If the contract includes extended maintenance periods (beyond standard 12 months):
- May increase premium rate
- Disclosed at time of underwriting
- Common on federal and state projects
P&P Bonds vs. Alternative Security
Why Surety Bonds Are Preferred
| Option | Capital Impact | Bank Relationship | Project Financing | Cost | Accepted Everywhere |
|---|---|---|---|---|---|
| P&P Bonds | Pay premium only (1-3%) | No impact | Preserved | 1-3% of contract | Yes |
| Letter of Credit | Ties up full amount | Reduces borrowing capacity | Reduced | 1-3% annually + fees | Sometimes |
| Cash Deposit | Ties up full amount | No impact | Reduced | Opportunity cost | Rarely |
Key Advantage: Surety bonds allow you to preserve working capital for project execution rather than tying it up as security.
When Letters of Credit Are Used
- When contractor cannot obtain surety bonds
- On contracts $35K-$150K (alternative protection)
- In foreign countries where bonding is impractical
- When specifically required by contract
Bid Bond and Performance Bond Requirements
Before you can even submit a proposal on bonded projects, you need a bid bond. The bid bond and performance bond work together - the bid bond guarantees you'll sign the contract and provide payment and performance bonds if awarded.
Typical amount: 5-10% of bid price
Cost: Often free with established surety relationship
Learn About Bid Bonds →Information specifically about performance bonds, performance bond cost, performance bond rates, and how they protect project owners. Learn about contractor performance bond requirements.
Learn About Performance Bonds →Detailed information about payment bonds, claim procedures, and subcontractor protection.
Learn About Payment Bonds →Performance and Payment Bond FAQs
Payment and performance bonds (also called payment performance bond or performance and payment bonds) are two surety bonds required together on most public construction projects. The performance bond guarantees project completion to contract specifications. The payment bond guarantees subcontractors and suppliers will be paid. They are issued together for a single premium.
Combined payment and performance bond cost typically ranges from 0.5% to 3% of the contract value. Performance bond rates and payment bond rates are combined - you pay one premium for both bonds. For a $1 million contract with good credit, expect to pay $10,000-$20,000 total. Performance bond cost varies based on credit and project complexity.
Payment and performance bonds are required on federal construction contracts over $150,000 under the Miller Act, state and local contracts above threshold amounts per Little Miller Acts, and many private projects at the owner's discretion. The payment performance bond is often paired with bid bond and performance bond requirements.
No. Payment and performance bonds are issued together for a single combined premium. Performance bond rates and payment bond rates are the same - the cost is identical whether you need one bond or both. This payment and performance bond rate structure makes budgeting simple.
Approval timeline depends on bond size. Bonds under $250,000 can be approved in 24-48 hours. Bonds between $250,000-$750,000 take 2-5 business days. Larger bonds requiring full underwriting take 5-14 business days.
When contract value increases through change orders, your bond automatically covers the new amount. You'll owe additional premium (prorated) at project completion.
Payment and performance bond rates depend on credit score. Most standard programs require 700+ credit score for best performance bond rates (0.5-1.5%). Contractors with lower scores can still qualify but may pay higher performance bond cost (2.5-3%+) or need to provide collateral.
Get Your P&P Bond Quote
One application. One premium. Both bonds. Get approved in 24-48 hours with rates starting at 0.5% of contract value.
What You Get:
- Performance bond (100% of contract)
- Payment bond (100% of contract)
- Miller Act compliant
- Treasury-listed carriers
- All 50 states
📋 Get Your Performance Bond Quote
Fast approval • Competitive rates