Performance Bond vs Payment Bond — What's the Difference?

The Miller Act (40 U.S.C. §§ 3131–3134) requires both on federal construction contracts exceeding $150,000. Congress paired them for a reason: the performance bond protects the United States as the project owner against contractor default, while the payment bond protects subcontractors and material suppliers who otherwise could not file mechanic's liens against federal property. FAR 28.102-2 implements this with default penal sums of 100% of the contract price for each. Miller Act enforcement records document that nearly every federal construction job uses the paired structure rather than alternative payment protections.

Generally no. FAR 52.228-15 (the standard performance and payment bond clause) bundles them together for construction over $150,000. Below that threshold but above $35,000, FAR 28.102-1(b) allows alternative payment protections (e.g., irrevocable letters of credit, certified checks), but the contracting officer still chooses. On state and private projects, the two bonds are often issued together but the obligee can waive one.

A Miller Act claim is the action a subcontractor or supplier files against the federal payment bond when they have not been paid. Under 40 U.S.C. § 3133(b), claimants without a direct contract with the prime must give written notice within 90 days of last labor or materials and may sue in U.S. District Court between 90 days and one year after last work. A performance-bond claim, by contrast, is filed by the contracting officer (the obligee) when the prime contractor defaults on completion — a fundamentally different trigger and claimant population.

Surety industry loss data published by the Surety & Fidelity Association of America (SFAA) consistently shows payment-bond claims outpacing performance-bond claims in count, though performance claims are typically larger in dollar value. The carrier rate filings show why: a payment bond can be tripped by any one of dozens of subs and suppliers on a typical job, while a performance-bond claim usually requires a full-blown contractor default. Claim frequency on the payment side is structurally higher because the universe of potential claimants is larger.

No. Performance bonds run to the obligee (the project owner), not to subcontractors. A sub that has not been paid must look to the payment bond, not the performance bond. This is a frequent source of confusion. The standard underwriting model treats them as separate instruments with separate claimants: payment bond protects the labor-and-material chain, performance bond protects the owner against the contractor.

Private owners are not bound by the Miller Act or state Little Miller Acts and can negotiate any combination they want. Many private commercial projects require only a performance bond because the owner can rely on lien rights to motivate prompt payment to subs. When private owners do require both, the payment bond penal sum is often reduced (25%–50% of contract value) to lower premium. On private projects without lien protections — like some leasehold or institutional jobs — owners frequently demand both at 100% to mirror the federal model.