Performance Bond for Your Construction Project
A performance bond is a surety bond that guarantees a contractor will finish a construction contract according to its terms. If the contractor defaults, the surety pays to complete the work, up to the bond amount (often 100% of the contract price). Premiums typically run 0.5%–3% of contract value. BuySuretyBonds.com can help you request a quote and review the project's bonding requirements. Approval, timing and pricing depend on carrier underwriting.
What helps your agent quote
- Contract amount and your bond deadline
- Project owner (obligee) and the required bond form, if you have it
- Your company’s legal name and the project state
- For larger contracts, the carrier may ask for financial statements and a work-in-progress schedule
You can start without every document. No payment is needed to request a quote.
What helps your agent quote
- Contract amount and your bond deadline
- Project owner (obligee) and the required bond form, if you have it
- Your company’s legal name and the project state
- For larger contracts, the carrier may ask for financial statements and a work-in-progress schedule
You can start without every document. No payment is needed to request a quote.
- Who requires it: The project owner (the obligee): federal agencies under the Miller Act on contracts over $150,000 (40 U.S.C. §§3131-3134), states and cities under their Little Miller Acts, and private owners by contract.
- Amount: Often 100% of the contract price, set by the bond requirement in the contract documents.
- Typical cost (estimate): typically 0.5%-3% of contract value: 0.5%-1.5% for strong credit (750+) and 1%-3% for average contractors. On a $1M contract that is about $5,000-$30,000. The surety sets the final price.
- Timing: Same-day submission; most quotes within one business day.
Official Federal Requirements
"Before any contract of more than $100,000 is awarded for the construction, alteration, or repair of any public building or public work of the Federal Government, a person must furnish to the Government a performance bond with a surety satisfactory to the officer awarding the contract, and in an amount the officer considers adequate, for the protection of the Government."Miller Act — U.S. Government Publishing Office • 40 U.S.C. § 3131(b)(1)
The Construction Bond Trilogy: Maintenance Bond vs. Performance Bond
Bid bonds during procurement, then performance and payment bonds after contract award, and often a maintenance bond for the warranty period. Most contractors hold a contractor license bond before any of these.
1. Bid Bond
Guarantees you'll honor your bid price and obtain required bonds if awarded
2. Performance Bond
Guarantees project completion according to contract specifications
3. Payment Bond
Guarantees payment to subcontractors, laborers, and material suppliers
Watch: Performance Bonds Explained: Miller Act, Rates & How to Get One (Contractor Guide 2026)
The Miller Act requires performance AND payment bonds on all federal construction projects over $150,000. Rates from 0.5% of contract value. Here's everything contractors need — bond trilogy, Three C's of underwriting, and the SBA program that hit a record $10.6B in FY2025.
Key moments in this video
What is a Performance Bond? Performance Bond vs. Surety Bond
A construction performance bond creates a legally binding obligation among three parties: the principal (contractor who purchases the bond and guarantees completion), the obligee (project owner protected by the bond), and the surety (the company issuing the bond that backs the contractor's performance). If the contractor defaults, the surety must either complete the project, hire a replacement contractor, or pay the obligee damages up to the bond's penal sum.
The penal sum represents the surety's maximum liability—typically 100% of the contract value for federal projects and most state requirements. This means a $2 million contract requires a $2 million performance bond, exposing the surety to significant risk and explaining why underwriting standards remain rigorous.
The construction surety bond market operates on fundamentally different principles than insurance — for a deeper look at the distinctions, see our bond vs. insurance comparison. Rather than pooling risk against expected losses, sureties underwrite contractors they believe will never default — the bond serves as a prequalification mechanism. This distinction explains why the "Three C's" of underwriting (Character, Capacity, and Capital) dominate every bonding decision. For a walkthrough of the full application process, see our step-by-step bonding guide.
Who Pays for a Performance Bond? The Three-Party Surety Relationship
The General Agreement of Indemnity (GAI)
Every contractor signs a GAI requiring personal reimbursement of any surety losses. Owners of 10% or more equity—and often their spouses—must sign, creating personal liability that survives bankruptcy. The surety expects zero losses; when claims occur, they pursue recovery against the contractor and all indemnitors.
Construction Performance Bond Requirements: The Miller Act
The Miller Act (40 U.S.C. §§3131-3134) establishes mandatory bonding for federal construction contracts, with the Federal Acquisition Regulation (FAR) implementing specific requirements across three threshold tiers. For a comprehensive breakdown of federal bonding obligations, see our Miller Act bond requirements guide.
State and local projects run on each state's Little Miller Act instead, each with its own dollar trigger. Our performance bond requirements guide compares those thresholds state by state, and the bid bond calculator sizes the bid security that comes before the award.
Contracts Over $150,000
MandatoryThe FAR at 48 CFR 28.102-1(a) requires both performance and payment bonds for all federal construction contracts exceeding $150,000. Bond amounts are normally 100% of the original contract price (FAR 28.102-2).
Required Federal Forms
- • SF 25: Performance Bond (construction)
- • SF 25A: Payment Bond (construction)
- • SF 24: Bid Guarantee
- • SF 25B: Continuation sheet for complex bonds
Surety Requirements
- • Must appear on Treasury Circular 570
- • Cannot exceed underwriting limit without reinsurance
- • AIA forms are NOT acceptable
- • May result in bid rejection as non-responsive
Contracts $35,000 - $150,000
FlexibleFor construction contracts in this mid-range, the contracting officer must select two or more alternative payment protections:
Waiver Authority
LimitedThe Miller Act permits waivers in limited circumstances. Contracting officers may waive bonding requirements for work performed in foreign countries when finding it "impracticable." Additionally, the Secretaries of Army, Navy, Air Force, or Transportation may waive requirements for cost-plus-fixed-fee contracts and contracts for manufacturing vessels, aircraft, munitions, or supplies.
State Little Miller Acts: A Patchwork of Requirements
Every state plus the District of Columbia has enacted bonding statutes modeled on the Miller Act, though threshold amounts and requirements vary dramatically. Compare every state's trigger and statute in our Little Miller Act thresholds by state table.
States with Lowest Thresholds
| State | Threshold | Bond Amount |
|---|---|---|
| Massachusetts | $25,000 | 50% minimum (payment bond) |
| Louisiana | $25,000 | 50% minimum (payment bond) |
| California | $25,000 | 100% |
| Texas (payment) | $25,000 | 100% |
| Mississippi | $25,000 | 100% |
| New Mexico | $25,000 | 100% |
California's low threshold combined with its market size makes surety relationships particularly important for West Coast contractors.
States with Higher Thresholds
| State | Threshold | Notable Features |
|---|---|---|
| Virginia | $500,000 (general) | $350,000 for transportation projects |
| North Dakota | $250,000 | One bond covers performance and payment |
| Indiana | $200,000 | Local public works payment bond |
| Maine | $125,000 | Standard 100% |
| Wyoming | $150,000 | One bond covers performance and payment |
Unique State Variations
Alabama
100% performance, only 50% payment bonds
Alaska
Sliding scale: 50% under $1M, 40% for $1-5M
Idaho
Unique 85% minimum requirement
Mississippi
Below $25,000, bonds can be skipped only with a lump-sum payment at completion
Louisiana
Payment bond of at least 50% on contracts over $25,000
South Carolina
State agencies may waive bonds at $50,000 or less
Transportation rules often differ from general state statutes. Virginia requires bonds on transportation projects over $350,000, compared to $500,000 for other public construction (Va. Code § 2.2-4337). Florida DOT contracts follow their own statute (Fla. Stat. § 337.18).
Performance Bond Requirements by State
Each state's Little Miller Act has its own thresholds, statutes, and agency-specific rules. Deep-dives for the highest-volume markets:
California
State Contract Act (PCC §10221-10222) vs. Civil Code §9550-9554 for local work, with 100% payment bonds over $25,000. SB 61 retention rules and CSLB $25K license bond interaction.
California performance bond guide →Florida
Dual statute framework: §255.05 (Little Miller Act, $100K–$200K thresholds) vs. FDOT §337.18 ($250K). Bond recording rules and the 2023 claim-procedure changes.
Florida performance bond guide →New York
SFL 137 (payment) + SFL 139-f (retainage). Wicks Law thresholds ($3M NYC / $1.5M suburban / $500K upstate). ESD Surety Bond Assistance Program.
New York performance bond guide →Ohio
Three separate frameworks: ORC 153.54–.57 (Little Miller Act), ORC 5525.16 (ODOT), and OAC 153:1-4-02 (OFCC).
Ohio performance bond guide →Texas
Gov Code Ch. 2253 three-tier thresholds ($100K performance, $25K / $50K payment by entity). Property Code Ch. 53 for private. Surety qualification rules for bonds over $100K.
Texas performance bond guide →Arizona
ARS Title 34 public works bonding. ROC contractor licensing adds separate bond requirements. Fast-growing construction market with active state and municipal project pipelines.
Arizona performance bond →Washington
RCW 39.08 governs public works bonding. Washington's contractor registration bond is separate from project-level performance bonds for public construction.
Washington performance bond →Virginia
Virginia has the highest general Little Miller Act threshold in the nation at $500,000, with a separate $350,000 threshold for state-funded transportation projects (Va. Code § 2.2-4337).
Virginia performance bond →Pennsylvania
The Public Works Contractors' Bond Law of 1967 and the Commonwealth Procurement Code govern bonding for state and local public construction contracts.
Pennsylvania performance bond →Nevada
NRS Chapter 339 Little Miller Act requires bonds on public works. The NSCB also requires contractor license bonds, which are separate from project bonding requirements.
Nevada performance bond →North Carolina
NCGS §44A-26 requires performance and payment bonds when a public project costs more than $300,000 and a prime contract exceeds $50,000 (state agency projects have a higher threshold).
North Carolina performance bond →Maryland
State Finance and Procurement §17-103 requires a performance bond on public construction contracts over $100,000, and §17-104 spells out cash and real-property alternatives to a surety bond.
Maryland performance bond →Other States?
Review the information for your project state and request a quote with that state pre-filled. Availability depends on licensing and carrier underwriting.
Get your state quote →Every state performance bond page
SBA Surety Bond Guarantee Program
Established in 1971, the SBA program helps small and emerging contractors who cannot obtain traditional bonding by guaranteeing sureties against a portion of their losses. In fiscal year 2025, the program guaranteed $10.6 billion in contract value—a record year supporting over 2,200 small businesses in construction, contracting, and manufacturing. See our full breakdown of the FY2025 record for what this means for small contractors entering the bonded market.
Current Program Limits
Guarantee Percentages
- • Contracts $100,000 or less
- • 8(a) Business Development participants
- • HUBZone certified businesses
- • Veteran-owned small businesses
- • Service-Disabled Veteran-owned businesses
All other contracts over $100,000
Fee Structure
Contractors pay a 0.6% fee on the contract price for performance and payment bond guarantees—there's no fee for bid bonds and no application fee. Sureties also pay SBA a fee based on the premium they charge.
Ready to Get Bonded?
Estimate your premium with our free calculator, or send your project details for an agent review.
The Three C's of Surety Underwriting
Sureties evaluate contractors through three fundamental criteria—with character often proving decisive when other factors are marginal.
Character
Carries the most weight in marginal cases. A presumption against good character applies if the contractor is incarcerated, under felony indictment, or obtained bonds through fraud.
- • History of completing projects on time
- • Track record paying subcontractors
- • Quality of communication
- • Transparency in applications
- • Legal history (bankruptcies, liens)
- • Industry references
Capacity
Measures ability to perform. Sureties generally limit new projects to 1.5-2× the contractor's largest completed job.
- • Years in business
- • Project size history
- • Technical expertise of management
- • Adequate personnel
- • Equipment ownership/access
- • Quality of accounting systems
Capital
Determines financial strength. Working capital is the primary driver of bonding capacity.
- • Working capital (current assets - liabilities)
- • Net worth
- • Liquidity and cash on hand
- • Consistent profitability
- • Debt ratios (prefer <4:1)
- • Bank credit lines
Performance Bond Application: Financial Statement Requirements by Bond Size
| Bond Program Size | Statement Type Required |
|---|---|
| Up to $400,000 | Credit-based; financials may not be required |
| $500,000 - $1 million | CPA-compiled statements |
| $1 - $3 million | CPA-compiled or reviewed |
| $3 - $10 million | CPA-reviewed statements |
| $10 - $100 million | CPA-reviewed (audited at higher end) |
| $100 million+ | CPA-audited statements |
Understanding Bonding Capacity
Bonding capacity represents the maximum surety credit extended to a contractor, expressed as two related limits: the single job limit (maximum for any one project) and the aggregate program limit (total bonded backlog allowed simultaneously).
The Working Capital Formula
Single job limits typically equal 50% of aggregate capacity
Example: A contractor with $500,000 working capital might receive $5-10 million aggregate capacity with a $2.5-5 million single job limit. However, sureties adjust working capital by excluding receivables over 90 days, stale inventory, officer loans, and related party receivables.
Strategies to Increase Capacity
Financial
- • Retain earnings rather than distributing profits
- • Subordinate shareholder loans to surety claims
- • Use long-term financing for equipment
- • Time payments around fiscal year-end
- • Collect aged receivables aggressively
Operational
- • Complete projects profitably and on time
- • Maintain accurate, real-time WIP schedules
- • Improve estimating accuracy
- • Pay subcontractors promptly
- • Communicate proactively with surety
Factors That Decrease Capacity
- •Financial deterioration (losses, reduced working capital)
- •Bond claims - even one claim significantly impacts capacity
- •Project problems (profit fade, disputes)
- •Loss of key personnel
- •Poor communication with surety
- •Tax liens or judgments
- •Job borrow (overbilling exceeding estimated profit)
Work-in-Progress (WIP) Schedule: Critical Underwriting Document
The WIP schedule ranks among the most important underwriting documents. Sureties analyze contract amounts, total estimated costs versus costs incurred, billings versus completion percentage, and profit fade trends across projects.
Job borrow—overbilling that exceeds estimated profit—represents a significant red flag indicating potential cash flow problems. Consistent profit fade across multiple projects suggests estimating or execution issues that may reduce future capacity.
Performance Bond Cost: 0.5% to 3% of Contract Value
Performance bond premiums use rate-per-thousand calculations. Many sureties use tiered sliding scales where rates decrease as contract value increases. For a detailed breakdown of pricing factors and strategies to reduce your premium, see our complete performance bond cost guide, or use our performance bond cost calculator to estimate your rate (the construction bond calculator prices bid, performance and payment bonds together). Our broader surety bond cost guide covers pricing factors that apply across all bond types.
| Credit Tier | Score | Rate | $500K Contract | $1M Contract | $2M Contract |
|---|---|---|---|---|---|
| Excellent | 750+ | 0.5-1.5% | $2,500-$7,500 | $5,000-$15,000 | $10,000-$30,000 |
| Good | 700-749 | 1-2% | $5,000-$10,000 | $10,000-$20,000 | $20,000-$40,000 |
| Fair | 650-699 | 2-3% | $10,000-$15,000 | $20,000-$30,000 | $40,000-$60,000 |
| Challenged | <650 | 3-8%+ | $15,000-$40,000 | $30,000-$80,000 | $60,000-$160,000 |
Performance Bond Cost by Credit Tier
Based on a $500,000 contract bond amount
- 750+ (Excellent)Rate: 0.5–1.5%$2,500–$7,500
- 700–749 (Good)Rate: 1–2%$5,000–$10,000
- 650–699 (Fair)Rate: 2–3%$10,000–$15,000
- Below 650Rate: 3–8%+$15,000–$40,000
Rates vary by contract size, project type, and contractor financials. Larger contracts typically receive lower percentage rates.
Factors Affecting Premium Rates
- Contract size: Larger contracts receive lower percentage rates
- Credit and financials: 700+ scores qualify for standard programs
- Experience: Track record with similar project types
- Project duration: 12-24 months is typical; longer may cost more
Payment and Adjustments
- Due upon execution: Payable upfront or within 45 days
- Maintenance: 12-24 months typically included
- Change orders: Increases trigger additional premium
- Refunds: Generally non-refundable once submitted
How Does a Performance Bond Work? Claims and Surety Response Options
Understanding what triggers claims and how sureties respond helps contractors avoid defaults and navigate problems effectively when they arise.
What Constitutes Default
Owner Obligations Before Claiming (AIA A312-2010)
Owner must provide formal written notice to contractor and surety
Owner must declare the contractor in default and terminate the contract
Owner must not itself be in default (payments made per contract terms)
The 2010 AIA revision added important protections: notice failures don't automatically release the surety unless "actual prejudice" is demonstrated.
Five Surety Response Options
1. Finance the Original Contractor
The surety provides funding to allow the contractor to complete work—often the most cost-effective approach when projects are near completion.
2. Takeover Completion
The surety assumes the prime contractor role, selecting a completion contractor. Risks the "lost penal sum defense"—surety becomes fully responsible regardless of cost.
3. Tender a Replacement Contractor
The surety arranges for a new contractor to complete the project under a new contract with the owner, absorbing cost differentials.
4. Let Obligee Complete
When the contractor has credible defenses or damages approach the penal sum, the surety may decline to act while the owner completes independently.
5. Deny the Claim
If conditions precedent aren't satisfied or valid defenses exist (material scope changes, owner defaults), the surety may deny liability.
Contract Performance Bond Forms: Federal, State, and Private
Selecting appropriate bond forms ensures enforceability and proper protection for all parties.
Federal Projects: Standard Forms Required
Federal construction contracts over $150,000 must use SF 25 (Performance) and SF 25A (Payment). AIA forms are NOT acceptable and may result in bid rejection.
Consent of Surety Required When:
- • Modifications exceed price by $50,000+ with increased risk
- • Contract price changes by more than 25% or $50,000
- • Novation agreements
Private Projects: AIA or ConsensusDocs
AIA A312-2010 is the most widely used standard form for private construction, containing both performance and payment bonds.
Key Provisions:
- • Obligee must request pre-default discussions
- • Five enumerated surety performance options
- • "Actual prejudice" standard for notice failures
- • ConsensusDocs 260/261 as alternative
Key Bond Terms to Understand
Penal Sum
The surety's absolute maximum liability regardless of actual damages. Reducing coverage rarely reduces premium.
Duration
Bonds remain effective until all obligations are fulfilled, including warranty periods. They don't automatically expire.
Dual Obligee Riders
Extend protection to additional parties (typically lenders) without increasing aggregate surety liability.
Co-Surety Arrangements
Multiple sureties share risk on large bonds when no single surety has adequate capacity.
How to Obtain a Performance Bond: Best Practices for Building Bonding Relationships
Successful contractors treat their surety relationship as a strategic asset, investing in communication, financial management, and operational excellence.
Establish the Foundation
- • Work with a specialized surety bond producer, not a general insurance agent
- • Engage a construction-experienced CPA from the start
- • Prepare proper percentage-of-completion financials
- • Match contractor profiles to appropriate sureties
Maintain Communication
- • Provide requested information promptly
- • Submit interim financials every 3-6 months
- • Discuss challenges proactively
- • Contact surety immediately when problems arise
- • Build long-term relationships over rate shopping
Avoid Claim Triggers
- • Don't pursue projects beyond demonstrated capacity
- • Maintain rigorous estimating discipline
- • Don't use one project's receipts to fund another
- • Pay subcontractors and suppliers promptly
- • Document schedule impacts and change orders
If You Receive a Claim Notice
- Contact your surety broker immediately
- Gather all project documentation
- Cooperate fully with surety investigation (required under GAI)
- Provide your position with supporting documentation
- Consider whether curing the default is possible
- Explore alternative resolutions before formal proceedings
Construction Performance Bonds
$2.2 trillion construction market. Miller Act requires bonds for federal projects over $150,000. This includes both residential contractor bonds and commercial contractor bonds.
Federal Projects
Miller Act: 100% P&P bonds over $150K
State Projects
Little Miller Acts: thresholds up to $500K
Private Projects
Often required for $1M+ commercial work
Service Contract Performance Bonds
The three highest-volume non-construction verticals: professional services (A/E, consulting, management), staffing and federal workforce (SCA-covered contracts), and healthcare and medical (VA, IHS, DoD). Healthcare suppliers that bill Medicare for durable medical equipment need a different instrument altogether: the DMEPOS Medicare surety bond, a $50,000-per-NPI compliance bond filed with CMS rather than a contract performance bond.
Also covered: federal government procurement (Miller Act, GSA, FAR 28.103), janitorial services, commercial cleaning (EPA-regulated specialty contracts), IT services and government implementations, transportation and logistics (DOD/FMCSA), maintenance and repair contracts, food service and institutional catering, security services for government facilities, waste management and municipal contracts, integrated facility management, public transit and school bus (FTA), DLA/DoD manufacturing (Berry Amendment), utility infrastructure (IOU, RUS, gas LDC), BEAD broadband and FCC contracts, K-12 districts, higher-ed, and EdTech, and landscaping and federal grounds contracts.
A/E, consulting & management contracts
Federal workforce, SCA-covered contracts
Miller Act, GSA, federal procurement
Government & healthcare facility contracts
Facility service contracts
Institutional & cafeteria contracts
FTA, school district, paratransit
IOU, municipal, RUS coop, gas LDC
BEAD, FCC, OSP contracts
K-12 districts, higher-ed & EdTech
EPA cleanup, SMCRA reclamation, closure bonds
Contracting in California, Texas or Florida?
California
California contractors need a $25,000 CSLB license bond (Bus. & Prof. Code 7071.6) before the license issues. Public jobs add performance and payment bonds on top.
Texas
Texas has no statewide contractor license bond, but public works contracts over the statutory threshold require performance and payment bonds under Gov. Code Chapter 2253.
Florida
Florida's DBPR contractor license bond ($10,000 to $20,000) applies mainly to applicants with a credit score below 660, so many contractors need none. Public projects require performance and payment bonds under F.S. 255.05.
Every contract bond starts with a license bond
Most states require a contractor license bond before you can bid. Fast-growing construction markets:
Frequently Asked Questions
Common questions about construction performance bonds
What is a performance bond?
When are performance bonds legally required?
How much does a performance bond cost?
What is the difference between a performance bond and payment bond?
What is bonding capacity and how is it calculated?
Can I get a performance bond with bad credit?
How do performance bond companies evaluate contractors? The "Three C's" of surety underwriting
What happens if a performance bond claim is filed?
Performance bond vs letter of credit: can a letter of credit replace a bond?
Official Government Resource
FAR Part 28: Bonds and Insurance
Federal Acquisition Regulation bonding requirements and procedures
Win Your Next Contract Today
Performance bonds unlock government and commercial contracts. Bonding capacity determines which projects you can pursue.
Performance bonds by state and industry
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Cost
- Dc
- Education
- Environmental
- Florida
- Food Service
- Georgia
- Government Contracts
- Idaho
- Illinois
- Indiana
- Janitorial
- Louisiana
- Maine
- Maintenance
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nevada
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Pennsylvania
- Professional Services
- South Carolina
- Staffing
- Telecom
- Tennessee
- Texas
- Transportation
- Utility Services
- Virginia
- Washington
- Wyoming
All content is researched from official state and federal sources (.gov). BuySuretyBonds.com works with Treasury-listed surety carriers.