Project bonds
Performance Bonds
Win the contract with the guarantee the owner requires. Share the project and contract value and an underwriter takes it from there.
Fast approvals and straightforward guidance.
— Josh A., Los Angeles, CA
Estimated at 3% of the bond amount. The bond amount is usually 100% of the contract price and is stated on the bond form.
3% of a $50,000 bond. This is an estimate, not a quote. Final approval and pricing are subject to underwriting.
Get my exact priceA performance bond is a surety bond that guarantees a contractor will complete a project according to the contract. If the contractor defaults, the surety can finance the completion, bring in another contractor, or pay the owner up to the bond amount.
You, the contractor, who promises to complete the work.
The project owner, public or private, who is protected if the contract is not completed.
The bond company that guarantees performance and steps in if you default.
What a performance bond guarantees
The bond guarantees that the work will be completed under the contract documents. It covers the contractor failing to finish, abandoning the job, or defaulting in a way that the owner has the right to terminate.
It protects the owner from the cost of a failed project. It does not protect you. If the surety pays or finishes the work, it recovers its cost from you through the indemnity agreement.
When a performance bond is required
Federal construction contracts above the Miller Act threshold require performance and payment bonds. Most states have similar laws for public works, usually called Little Miller Acts, with their own contract thresholds.
Private owners and lenders can also require a performance bond in the contract. It is common on commercial work, development projects, and any job where a failure would be costly.
How the surety responds to a default
After a valid default termination by the owner, the surety investigates and chooses a remedy. It can complete the work itself, hire a replacement contractor under a new agreement, let the owner finish and pay the excess cost, or pay the owner up to the bond amount.
In every case the surety cost is the surety loss. This is why sureties underwrite the contractor carefully before issuing a bond.
How underwriters decide
Underwriters look at three things: character, capacity, and capital. They want to see a record of finished jobs, the ability to carry the size of project you are bidding, and the financial strength to absorb a bad job.
- Reviewed or audited financial statements for larger programs
- A work-in-progress schedule showing jobs, costs, and billings
- Banking and credit references
- Experience on projects of similar size and type
Change orders and bond term
The bond amount normally follows the contract price. When change orders raise the price, the bond is increased to match. The bond stays in force until the work is complete and accepted, and a one-year warranty period is often included.
Who needs it
Who needs a performance bond
- Contractors on federal projects above the Miller Act threshold
- Contractors on state and local public works, which commonly follow a state "Little Miller Act"
- Contractors on private projects where the owner or lender requires a guarantee
- Subcontractors whose general contractor requires bonding down the chain
How it works
How to get a performance bond
Share the contract
Send the project name, owner, contract value, and the bond form required by the owner.
Submit your financials
Provide a company financial statement, work-in-progress schedule, and resumes. Smaller bonds can require less.
Underwriting review
An underwriter reviews the contractor and the contract and sets the premium. Most reviews take one to three business days.
Sign, pay, and receive the bond
Sign the indemnity agreement and pay the premium. The executed bond is delivered for the owner.
Cost
What a performance bond costs
Performance bonds are generally 3% of the bond amount. Payment and maintenance bonds are usually included with the performance bond. Enter the bond amount from your bond form to estimate your premium. Final approval and pricing are subject to underwriting.
What underwriters review
- Contract price and project type
- Contractor credit and financial strength
- Experience on similar projects
- Length of the project and warranty period
- Whether the bond is paired with a payment bond
What to have ready
- Executed or pending contract and bond form from the owner
- Company financial statement, reviewed or audited for larger programs
- Work-in-progress and backlog schedule
- Resume and list of completed projects
- Personal financial statements for owners, when requested
By state
Performance Bond requirements by state
Pick your state for the amounts, thresholds, and agencies that apply.
Related bonds
Payment Bond
Guarantees you will pay your subcontractors, laborers, and suppliers.
Bid Bond
Guarantees your bid. If you win and walk away, the owner is paid the difference.
Maintenance Bond
Covers defects in materials or workmanship after the project is finished.
Performance Bond questions
What is a performance bond?
A performance bond guarantees a contractor will complete a project under the contract. If the contractor defaults, the surety makes sure the project is finished or pays the owner up to the bond amount.
How much does a performance bond cost?
Generally 3% of the bond amount. A $50,000 performance bond costs about $1,500. The bond amount is on the bond form and is usually 100% of the contract price. Payment and maintenance bonds are usually included.
How much is the performance bond amount?
Usually 100% of the contract price. Some owners accept a lower percentage. The contract and bid documents state the requirement.
Are performance and payment bonds the same?
No, but they are usually issued together. A performance bond protects the owner from a failure to complete. A payment bond protects subcontractors and suppliers from nonpayment.
How long does it take to get a performance bond?
Typically one to three business days once underwriting has what it needs. New bonding relationships take longer than repeat accounts.
Can new contractors get a performance bond?
Yes. Smaller projects often qualify with personal credit and a basic financial statement. Larger bonds need stronger financials and experience.
What happens if I default on the project?
The owner can claim on the bond. The surety investigates and may complete the work, hire another contractor, or pay the owner. You are responsible for reimbursing the surety.