XL EaglePerformance and payment bonds (Performance bond and payment bond)
Performance and payment bonds stands for Performance bond and payment bond. A performance bond is a guarantee from a surety company that the work will be completed according to the contract. If the contractor defaults, the surety may finish the job, hire someone else, or pay the government up to the bond amount.
A payment bond is a guarantee that the contractor will pay its subcontractors and suppliers. On federal construction contracts over the Miller Act threshold, both bonds are generally required at 100 percent of the contract price, and the surety must be acceptable to the government, often one listed on the Treasury's approved list.
Why it matters to a small contractor
Bonding capacity limits how big a federal construction job you can take. Build a relationship with a surety agent early, keep clean financial statements, and know your single-job and total limits. The SBA also has a Surety Bond Guarantee program that can help small firms qualify.
Example
A small concrete company wants to bid a $600,000 federal sidewalk project. Their surety agent confirms they can bond it, and the cost of the bonds is built into the bid price.
Performance and payment bonds: common questions
How much does a performance bond cost?
The premium is a small percentage of the contract price and depends on your credit, financials, and experience. Ask a surety agent for a quote.
Do service contracts require bonds?
Usually not, but some service solicitations do require performance bonds. Check the solicitation.
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