Performance Bond Guide

Why do you need a performance and payment bond?

You are required to get bonds for public projects you are awarded to protect the public. If you do not complete the project according to the contract, a claim can be filed. For example, if you walk off the job before the work is complete, a claim can be made.

How Do Bid & Performance Bonds Work?


Frequent Questions

It is possible if you are a smaller contractor. However, your credit issues cannot be severe, as approvals for smaller contractors are based solely on personal credit. Larger contractors with strong CPA prepared business financials and appropriate industry experience can get approved with credit issues.

No. Performance bond costs are based on the full contract amount, as the bond guarantees the total scope of work will be completed. Otherwise, there is no way to determine what portion of the contract is bonded.

After you are awarded a contract that requires a performance and payment bond. If a contract requires a bid bond, a payment and performance surety bond will usually be required after. Learn the entire contract bond process by visiting the construction bond guide.

Yes. However, you must have acceptable personal credit and you will be limited to smaller bonds. Apply to determine if your new business qualifies.

Your assets were joined upon marriage. With surety bonding, you are corporately and personally responsible for repayment of bond claims. Therefore, the surety requires your spouse to personally guarantee your company. In addition, if your spouse is unwilling to provide a personal guarantee, the surety will question why they should.

It is your pre-approved bond limits. Bond lines include single and aggregate limits. The single limit is the largest bond you can get for one particular job. The aggregate limit is the total amount of bonded work on hand you can have at once.

We have industry standard bond forms on file from the AIA which are often used. However, you will need to obtain them from the obligee if they have their own specific bond forms.

Hire a construction CPA. Your business financial statement is the primary item sureties will use to determine your bond line. If a CPA unfamiliar with construction accounting is used, your statements will likely be incorrectly prepared, limiting your chances to increase your bond line. The performance bond size you can get is based on in order of importance your business financial statements, industry experience, banking records, supplier references, personal credit and financial statements.

Working with a construction surety agent is also vital. Surety bonding is a highly specialized field and the experience of a standard P&C insurance agency may not meet your needs, unless they have dedicated surety experts. Skilled surety agents have direct access to the best markets, which means they can provide the lowest rates and the most support. They can also work directly with a CPA to ensure the contractor up for review is presented properly.

Yes. The obligee will have financial strength (A.M. Best Rating), federal and/or state licensing requirements the bonding company must meet. Using a surety company that doesn't meet the requirements will result in your bonds being rejected by the obligee. In the event of a surety financial strength downgrade, the obligee may request a replacement bond from a new surety at your expense.

No. There are non-construction and service contracts that can also require bonds such as school bus transportation or janitorial contracts.

That's not a problem, you can apply and get a standalone payment bond approval. The same application and process is used for both standalone payment bonds and combined payment and performance bonds.

No. Only one application is needed when applying for performance and payment bonds.


Surety Bonds do not protect you

The bond is a form of insurance for your clients, which is why many businesses proudly list that they are bonded on their marketing material. However, you will be required to reimburse the bonding company should a claim be paid out.


All You Need To Know About Construction Bond Lines


Fidelity Bonds protect your business

You can protect your business from employee theft and fraud by purchasing a fidelity bond. You can read more in our fidelity bond section.

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What do bid & performance bonds cost?


How to get discounted contract bond rates

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