Performance bond vs payment bond vs bid bond

Construction surety bonds follow the job, not the company. Each of the three is written for one contract, names the project owner, and is sized off the price. What separates them is the moment each one can be called on, and who gets to call.

The bid bond lives for a few weeks. It goes in with your bid and answers one question: if you are the low bidder, will you sign and post the other two bonds? If you walk away, the owner claims on it to cover the cost of going to the next bidder. The performance bond starts at award and runs until the owner accepts the work. If you default, the surety steps in to finish the job, pay someone else to, or pay the owner up to the bond’s amount. The payment bond runs alongside it but protects a different set of people: the subcontractors, suppliers and workers below you, and its claim window stays open after the last delivery.

The mechanism underneath all three is the same three-party promise covered in our guide to contractor surety bonds: the surety pays first and then recovers from you. A claim on any of them is a debt, not a covered loss. What changes is the size, and the performance bond cost calculator shows what a contract-sized bond costs before you bid.

On federal construction the trio is not optional. The Bonds subchapter of Title 40, still called the Miller Act, makes a contractor furnish a performance bond and a payment bond before a contract for the construction, alteration or repair of a federal building or public work is awarded. The statute’s own text sets the line at more than $100,000; the Federal Acquisition Regulation, which is what a contracting officer actually applies, puts it at $150,000.

The amounts are the part contractors underestimate. Above the threshold the performance bond is 100% of the original contract price unless the officer decides a lesser amount protects the Government, and the payment bond is 100% unless the officer finds that impractical in writing. Every change order that raises the price raises both bonds by the same amount. The statute adds one more floor: the payment bond can never be smaller than the performance bond.

The bid guarantee is set by the officer at no less than 20% of the bid price, capped at $3,000,000. On construction only a separate bid guarantee for that bid is accepted, and all bonds or the alternative protection must be in hand before you get a notice to proceed.

The payment bond is where the clock matters, because it replaces the lien a subcontractor would file on private land. The statute gives a right of action to two groups only: anyone with a contract directly with the prime contractor, and anyone with a contract directly with a subcontractor. A supplier to a supplier is not named.

Two protections are easy to miss. You can get a certified copy of the payment bond and the contract from the contracting agency by affidavit that you supplied the work and were not paid. And a waiver of your right to sue on the bond is void unless it is in writing, signed by you, and signed after you started furnishing labour or material, so a waiver buried in a subcontract before work starts does not hold. Our surety bond guide covers what happens next, when the surety turns to the contractor who caused the claim.

States copy the federal pattern for their own public work, which is why these laws get the nickname. The shape is the same everywhere: a dollar line above which the public owner must take a performance bond and a payment bond, and a notice clock for anyone down the chain who wants to claim. The numbers and the clocks are not the same, and that is what catches contractors who work across a state line. Two we read from the legislatures’ own sites:

The details in the statutes matter as much as the table. Texas wants a sworn statement of account with the notice. Florida makes the contractor record the bond in the county where the job is and hand the public owner a certified copy before it will pay, and lets a contractor shorten your suit window to 60 days by recording a notice of contest. Florida also bars a claimant from waiving the right to sue the surety in advance.

North Carolina and most other states have their own version. We could not load North Carolina’s statute text on our last check, so its thresholds are not printed here; the bid documents for any public job will state the bond it requires. For the license side of that state, where a surety bond can stand in for working capital, see our North Carolina sheet.

No statute makes a private owner take a performance or payment bond. When you see one on a private job it is because the owner, the lender or the general contractor wrote it into the contract, usually on larger commercial work or when a sub is new to the GC. The bond form is then whatever the contract attaches, and the claim deadlines are the ones printed in that form, not the Miller Act’s. Read them at signing, not at the first missed payment.

On private land a subcontractor who is not paid can usually file a mechanics’ lien. Public land generally cannot be liened, and that is the whole reason the payment bond exists on public work: it is the lien’s stand-in. On a private job with a payment bond, the owner is often buying a way to keep liens off the title.

The bond a licensing board demands is a different instrument. It is a commercial bond, not a contract bond: it promises the board that you will follow licensing law, it is written once for the license rather than once per job, and its amount is fixed by statute. California’s contractor’s bond is $25,000, filed for consumers damaged by defective work or license-law violations and for employees owed wages.

That is why a firm can hold its license bond for years and still be turned down for a performance bond: the surety is pricing a $25,000 promise in one case and a promise worth the whole job in the other. Our bond cost calculator prices the license bond; the performance bond cost calculator works the contract-sized premium.

Sureties write contract bonds against a programme, not a single job: a single-job limit and an aggregate for all the bonded work you have open at once. The first public job is the hard one, because you have no bonded history. The U.S. Small Business Administration guarantees bid, payment and performance bonds written by participating sureties, which lets them bond small firms they would otherwise decline. Which sureties write small contract bonds, and how to check the one on your bond, is on our best contractor bond companies page.

You still have to pass the surety’s own credit, capacity and character review, and the SBA fee is refunded if the bond is cancelled or never issued. The license comes first either way: a surety will want your license number, and a public owner will check it, so get the general contractor license settled before the bid.