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Insurance glossary · Bonds

performance and payment bond.

The short answer

A performance bond guarantees you’ll finish the job; a payment bond guarantees your subs and suppliers get paid. Public and larger private projects often require both.

Nick McClish, Managing Partner, Riza Risk (licensed insurance agency) · Updated October 1, 2026

What does a performance bond guarantee?

That you’ll finish the job under the contract’s terms. If you default, the surety steps in to arrange completion, pay another contractor to finish, or pay the owner up to the bond amount, and then looks to you to repay it.

What does a payment bond guarantee?

That your subcontractors and suppliers get paid. On public jobs they usually can’t put a lien on government property, so the payment bond is how they’re protected if the contractor above them doesn’t pay.

When are performance and payment bonds required?

On public construction above set dollar amounts, under the federal Miller Act for federal work and each state’s own law for state and local work. Private owners, lenders and general contractors also ask for them by contract on larger jobs.

How much does a performance and payment bond cost?

Bonds are priced as a percentage of the contract amount, usually on a sliding scale that gets lower as the contract gets bigger, and the rate depends on the surety’s view of your finances and track record. Performance and payment bonds on the same job are typically priced together.

Is a bond the same as insurance?

No. Insurance protects you; a bond protects the owner or the people you owe, and the surety expects you to repay anything it pays out. Most contractors sign an indemnity agreement, often personally, as part of getting bonded.

Who can make a claim on a payment bond?

Usually subcontractors and suppliers who worked on the project, and often their subcontractors and suppliers one tier down. Claimants without a direct contract with the bonded contractor typically have to send written notices within set deadlines and sue within a set time, which vary by law.

What happens if there’s a claim on my bond?

The surety investigates and asks for your response. If the claim is valid and you don’t resolve it, the surety pays and then seeks repayment from you and anyone who signed the indemnity agreement. Claims also affect your future bonding capacity.

Do subcontractors need performance and payment bonds?

Sometimes. General contractors on larger or riskier jobs may require bonds from major subs, and some states require them on public projects above a size. More often, subs encounter payment bonds as claimants.

Do performance and payment bonds work differently by state?

Yes. Each state’s public works bond law sets its own contract threshold, bond amount and claim deadlines, and some treat state and local projects differently. Nevada, for example, sets a lower minimum bond amount than most states. The notes below cover Riza’s licensed states in detail and every other state in a line.

in the states where Riza is licensed.

Riza is a licensed insurance agency in New York, Colorado, Texas, Florida, Massachusetts, Arizona, Nevada, North Carolina, New Jersey and Georgia. Notes below cite the law they come from. Detailed write-ups cover Arizona, Nevada, Texas, North Carolina and New York. One-line notes for other licensed states appear with them when this term has one.

every other state.

How it works everywhere else, with the rule each line comes from. Riza is not licensed in these states.

by trade.

  • General contractorsPublic work and larger private projects require both bonds from you, and you may require them from major subs.
  • ElectricalElectrical contractors on public projects often need bonds for their own contracts, especially as prime contractors on separate-prime jobs.
  • PlumbingPlumbing subs on public jobs are usually protected by the general contractor’s payment bond, and some are asked to bond their own work.
  • HVACMechanical contracts on public and institutional work commonly require full performance and payment bonds.

where you’ll see it.

  • Bid documents“Performance and payment bonds in the amount of 100% of the contract sum are required.”
  • SubcontractsRequirements that major subs furnish their own bonds, or a copy of the prime’s payment bond.
  • Payment disputesNotices of claim sent to the bonded contractor and its surety.

bonded before the bid is due.

Riza places performance and payment bonds with sureties that fit your size, helps you meet the paperwork the bid requires, and keeps your bonding program ready for the next job.

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Bonding capacityLicense and permit bond

Coverage it touches: Surety bonds