Bid bonds, performance bonds and payment bonds: a contractor's guide
Many public projects and some private ones require surety bonds. If you want to bid bigger work, you need to understand them and get set up with a surety before bid day.
- A bond is a three-party guarantee: you (principal), the owner (obligee) and the surety.
- Federal construction contracts over $100,000 generally require performance and payment bonds under the Miller Act.
- The SBA guarantees bonds for eligible small businesses that might not qualify otherwise.
The three main bonds
- Bid bond: guarantees that if you win, you'll sign the contract and provide the required performance and payment bonds.
- Performance bond: guarantees you'll complete the work according to the contract.
- Payment bond: guarantees your subcontractors and suppliers get paid.
When bonds are required
For federal work, the Miller Act, 40 U.S.C. 3131 requires performance and payment bonds for construction contracts of more than $100,000. Most states have similar "Little Miller Act" laws for state and local public work, with their own thresholds. Private owners may also require bonds; it will be in the bid documents.
How getting bonded works
- Work with a surety agent or broker who specializes in construction.
- Expect to provide financial statements, work-in-progress schedules, references, and details of completed projects.
- The surety sets your bonding capacity: the size of a single job and the total of all your bonded work.
- Bond premiums are usually a percentage of the contract price, and depend on your credit, finances and track record.
SBA help for small contractors
According to the SBA: Surety bonds page, the SBA guarantees bid, performance and payment bonds issued by participating surety companies for eligible small businesses, for contracts up to $9 million (non-federal) and up to $14 million (federal). For performance and payment bond guarantees, the small business pays the SBA a fee of 0.6% of the contract price; there is no SBA fee for bid bond guarantees.
Bid-day tips
- Request bid bonds well before bid day; sureties need time.
- Check the bid documents for the exact bond form and amount required.
- Include bond premiums in your price.
Related: bid-day checklist · labor burden rate.
Published October 25, 2026. We do not use affiliate links on this page; see our Affiliate Disclosure.