Performance and Payment Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about performance and payment bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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What Are Performance and Payment Bonds?

Performance and Payment Bonds combine the protection of a performance bond and a payment bond in a single construction surety bond. Performance bonds and payment bonds can be purchased separately, but combining them streamlines the paperwork and is more convenient when both a performance bond and a payment bond are required for the same project.

It’s important to understand the different types of protection when purchasing a combined performance and payment bond.

  • Performance bonds protect project owners, public or private, against financial harm caused by contractors who fail to comply with construction laws, regulations, and building codes or fail to complete a project in accordance with their contractual obligations.
  • Payment bonds provide similar protection for subcontractors, workers, and suppliers who are not paid in accordance with the contracts governing their work. Payment bonds help prevent mechanic’s liens on a property.

Injured parties can file a claim against the contractor’s performance and payment bond and be compensated for their loss.

Who Needs Them?

The federal Miller Act requires performance and payment bonds for federally funded projects valued at more than $100,000. Individual states have their own versions of this legislation, referred to as “Little Miller Acts.” Some states maintain the $100,00+ minimum project value requiring performance and payment bonds. Others have set different project size requirements.

Private project owners also can require contractors to furnish performance and payment bonds to protect themselves and any investors.

How Do They Work?

The three parties to performance and payment bonds are referred to as the obligee, the principal, and the surety. Each has different rights and obligations.

  • The obligee is the project owner requiring the bond. The obligee establishes the required bond amount and the terms of the construction contract.
  • The principal is the contractor purchasing the bond and is legally obligated to pay all valid claims against it.
  • The surety guarantees the payment of claims, determines whether a claim is valid, extends credit to the principal, if necessary, to pay a claim, and sets the premium rate for each principal.

To honor its guarantee, the surety will pay a claim initially on the principal’s behalf. The principal must subsequently repay the resulting debt or risk being sued by the surety.

How Much Does a Performance and Payment Bond Cost?

The annual premium for a performance and payment bond is calculated by multiplying the required bond amount by the premium rate set by the surety through underwriting. The premium rate is determined largely by the principal’s personal credit score, which is a good measure of the risk of the surety not being repaid by the principal.

A high credit score means low risk, which deserves a low premium rate. A low credit score suggests high risk, which warrants a higher premium rate.

The premium rate for a well-qualified principal usually is somewhere between 0.5% and 3%.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about performance and payment bonds.  If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

CONTACT US FOR A

FREE PERFORMANCE & PAYMENT BOND QUOTE

What Are Performance and Payment Bonds?

Performance and Payment Bonds combine the protection of a performance bond and a payment bond in a single construction surety bond. Performance bonds and payment bonds can be purchased separately, but combining them streamlines the paperwork and is more convenient when both a performance bond and a payment bond are required for the same project.

It’s important to understand the different types of protection when purchasing a combined performance and payment bond.

  • Performance bonds protect project owners, public or private, against financial harm caused by contractors who fail to comply with construction laws, regulations, and building codes or fail to complete a project in accordance with their contractual obligations.
  • Payment bonds provide similar protection for subcontractors, workers, and suppliers who are not paid in accordance with the contracts governing their work. Payment bonds help prevent mechanic’s liens on a property.

Injured parties can file a claim against the contractor’s performance and payment bond and be compensated for their loss.

The federal Miller Act requires performance and payment bonds for federally funded projects valued at more than $100,000. Individual states have their own versions of this legislation, referred to as “Little Miller Acts.” Some states maintain the $100,00+ minimum project value requiring performance and payment bonds. Others have set different project size requirements.

Private project owners also can require contractors to furnish performance and payment bonds to protect themselves and any investors.

The three parties to performance and payment bonds are referred to as the obligee, the principal, and the surety. Each has different rights and obligations.

  • The obligee is the project owner requiring the bond. The obligee establishes the required bond amount and the terms of the construction contract.
  • The principal is the contractor purchasing the bond and is legally obligated to pay all valid claims against it.
  • The surety guarantees the payment of claims, determines whether a claim is valid, extends credit to the principal, if necessary, to pay a claim, and sets the premium rate for each principal.

To honor its guarantee, the surety will pay a claim initially on the principal’s behalf. The principal must subsequently repay the resulting debt or risk being sued by the surety.

The three parties to performance and payment bonds are referred to as the obligee, the principal, and the surety. Each has different rights and obligations.

  • The obligee is the project owner requiring the bond. The obligee establishes the required bond amount and the terms of the construction contract.
  • The principal is the contractor purchasing the bond and is legally obligated to pay all valid claims against it.
  • The surety guarantees the payment of claims, determines whether a claim is valid, extends credit to the principal, if necessary, to pay a claim, and sets the premium rate for each principal.

To honor its guarantee, the surety will pay a claim initially on the principal’s behalf. The principal must subsequently repay the resulting debt or risk being sued by the surety.

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