No. A surety bond is a three-party guarantee, not insurance for the contractor who buys it. The bond protects the obligee and the project, not the principal. If a valid claim is paid — say, a subcontractor wasn’t paid, and the surety covers it — the contractor remains financially responsible for reimbursing the surety for that amount. Because of this, sureties underwrite contractors more like a line of credit than a policy: they look closely at credit, financial statements, and project experience before issuing a bond, since the contractor is expected to make the surety whole if something goes wrong.
Performance and Payment Bonds Nationwide
Performance and payment bonds protect a project owner and its subcontractors when a contractor takes on construction work. Surety Bonds Agent helps contractors get bonded quickly, with competitive rates from licensed sureties in all 50 states.
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about bond type
What Are Performance and Payment Bonds?
A performance and payment bond is really two bonds issued together.
The performance bond guarantees the contractor (the principal) will complete the project according to the contract terms, protecting the project owner (the obligee) if the contractor defaults, goes bankrupt, or walks off the job.
The payment bond guarantees that same contractor will pay its subcontractors, laborers, and material suppliers, which protects them from non-payment and helps keep the project free of mechanic’s liens. Both bonds are backed by a surety — a bonding company that guarantees the principal’s obligations to the obligee.
| Role | Who It Is | What It Guarantees |
|---|---|---|
| Principal | The contractor performing the work | Completes the project and pays subcontractors, laborers, and suppliers as agreed |
| Obligee | The project owner (public agency or private client) | Is protected from financial loss if the contractor defaults |
| Surety | The bonding company (Surety Bonds Agent’s partners) | Backs the guarantee and steps in — or pays a valid claim — if the principal fails to perform |
Are Performance and Payment Bonds the Same as Insurance?
How Do Performance and Payment Bonds 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.
Who Needs a Performance and Payment Bond?
General contractors and subcontractors on public construction projects most often need a combined performance and payment bond.
Federal projects require one under the Miller Act (40 U.S.C. § 3131). While the statutory base threshold is set lower in the original law, the current applicable threshold enforced by federal agencies is $250,000 under FAR 28.102-1, which periodically adjusts the requirement for inflation.
Many states have their own version of this law — often called a “Little Miller Act” — for public projects that fall under state or municipal jurisdiction. Private project owners can also require these bonds as a condition of the contract, even when no law mandates it.
Sources: 40 U.S.C. § 3131 (Cornell Legal Information Institute — https://www.law.cornell.edu/uscode/text/40/3131) outlines the statutory Miller Act requirement. FAR 28.102-1 (https://www.acquisition.gov/far/28.102-1) states the current inflation-adjusted threshold of $250,000.
Disclaimer: Requirements, thresholds, and bond costs listed on this page are accurate as of September 3, 2026, but are subject to change by federal and state regulatory authorities or surety underwriters — for current rates and requirements, call 866-362-6637.
costs
How Much Does a Performance and Payment Bond Cost?
Bonds start at roughly 1% of the contract amount for well-qualified contractors, with premiums for most applicants falling between 1% and 5% of the total contract value. Where a contractor lands in that range depends on a handful of factors:
- Personal and business credit — stronger credit typically qualifies for the lower end of the rate range.
- Financial statements — sureties review balance sheets, cash flow, and work-in-progress schedules for larger bond amounts.
- Contractor experience — a track record of completed, similar-sized projects supports a better rate.
- Bond amount and project size — larger contracts are underwritten more closely and may require additional documentation.
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Choose Your State
Performance and payment bond requirements can vary by state and by whether the project is public or private. Select your state below for bonding details specific to your project.
We proudly serve all 50 states, offering a full range of surety bonds. To buy surety bonds online:
- Choose your state
- Choose the bond type you need
- Apply online to request a free quote
There’s no obligation, and we can often help you get bonded in 24 hours or less.
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step by step guide
The Bond Process, Step by Step
-
Submit an application
Provide basic information about your business, the project, and the bond amount required.
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Provide supporting documents
Depending on the bond amount, this may include a financial statement, a work history or list of completed projects, and a credit authorization.
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Get underwritten
A surety reviews the application and documentation and sets a premium rate based on your credit and financial strength.
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Receive your bond
Once approved, your performance and payment bond is issued and ready to submit to the project owner.
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Why Choose Surety Bonds Agent for Your Performance and Payment Bond?
Easy Application Process
Simply fill out our convenient online application form to get started.
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We work with a wide range of carriers to provide many options to our clients.
Competitive Rates
As an independent agency, we can leverage our carrier network to find the most competitive rates for the bonds you need.
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We work to get you bonded as quickly as possible, often in 24 hours or less.
30 Years of Proven Experience
With 30 years in the surety bond industry, our licensed agents know exactly how to match you with the right bond, fast and hassle-free.
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faq
Frequently Asked Questions
What's the difference between a performance bond and a payment bond?
A performance bond guarantees the contractor will complete the project according to the contract. A payment bond guarantees that subcontractors, laborers, and material suppliers get paid for their work. The two are usually issued together on the same project.
How much does a performance and payment bond cost?
Most contractors pay between 1% and 5% of the total contract amount, with the exact rate set by the surety based on credit, financial strength, and project experience.
Are performance and payment bonds required on every project?
Not always. Federal construction contracts over a set value require them under the Miller Act, and many states have similar requirements for public projects. Private project owners can also require them by contract even when no law does.
Is a performance and payment bond the same as insurance?
No. The bond protects the project owner, not the contractor who buys it. If a claim is paid, the contractor is responsible for reimbursing the surety.
What happens if a claim is filed against the bond?
The surety investigates the claim. If it’s valid, the surety pays it — for example, an unpaid subcontractor — and then looks to the contractor to reimburse that amount, since the contractor remains liable for its own obligations under the contract.
How long does it take to get a performance and payment bond?
Once submitted, an application with complete documentation and a strong credit profile can typically move through underwriting faster than one that’s missing paperwork or involves a larger, more complex project.
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