Bid vs Performance vs Payment Bond (Contractor Bonds)
Contractors bidding on public projects (federal, state, municipal) and most large private projects encounter three distinct surety bonds at different project stages. Often abbreviated as the "P&P bond" (Performance + Payment, typically purchased together), with the Bid Bond as a separate pre-award product.
Federal projects above the Miller Act threshold ($150,000 for performance, $35,000 for payment) require all three by statute. State "Little Miller Acts" mirror the same structure with varying thresholds. Knowing which is which prevents project disqualification, payment disputes, and contract default exposure.
Side-by-side
| Dimension | Bid Bond | Performance + Payment Bond |
|---|---|---|
| When required (project stage) | Pre-award. Submitted with the contractor's bid. Guarantees the contractor will accept the contract at the bid price and post the Performance + Payment bonds if awarded. |
Post-award / pre-mobilization. Required before work begins. Performance + Payment bonds are usually purchased together from the same surety as a package. |
| Who's protected | Project owner (obligee). If the lowest bidder refuses the contract or fails to post P&P bonds, the bid bond pays the owner the difference between the lowest and the next-lowest bid (up to bond face). |
Performance Bond: Project owner. Guarantees the contractor will complete the project per the contract terms. |
| Face amount (bond limit) | Typically 5-10% of the bid amount. A $1M bid would carry a $50K-$100K bid bond. Sometimes higher on complex jobs. |
Typically 100% of contract value for Performance and 100% for Payment. A $1M contract carries $1M in P&P bonds combined ($1M Performance + $1M Payment) — sometimes structured as a single combined $1M bond. |
| Cost (premium) | Often included free or at minimum charge by sureties as part of the bonded relationship. The surety underwrites the contractor's bonding capacity once; bid bonds are a routine extension. |
Approximately 1-3% of contract value per year, prorated to project duration. A $1M contract running 12 months might cost $10K-$30K in combined P&P bond premium. Contractors with strong credit + financial statements get lower rates. |
| Federal/state requirement | Required on virtually all federal projects above the Miller Act threshold. Most state and municipal projects mirror this via "Little Miller Acts." Many private projects also require — read the bid documents. |
Federal Miller Act: Performance bond at 100% of contract value, Payment bond at 100% of contract value, required on federal construction contracts above the $150,000 threshold (per FAR 28.102-1). Contracts from $35,000 to $150,000 use simplified payment-protection options. State Little Miller Acts mirror with varying thresholds. |
| What triggers a claim | Contractor: (a) refuses the awarded contract, (b) fails to execute the contract, (c) fails to post the required P&P bonds. Bond pays the owner the bid-price difference. |
Performance: contractor defaults on the project (abandonment, bankruptcy, unable to complete). Bond either pays the difference for owner to hire new contractor or finances completion. |
Bottom line
You typically need all three for federal projects over the Miller Act threshold:
- Bid Bond submitted with the bid (1 month before award)
- Performance Bond + Payment Bond posted at contract signing (typically purchased together)
For private projects, the project owner's requirements drive whether bonds are needed. Read the bid documents. Even when not statutorily required, P&P bonds may be requested to satisfy the owner's lender or as a competitive differentiator.
Establish a surety relationship early. Your first bond requires underwriting (financial statements, work-in-progress schedule, credit) and can take 2-3 weeks. After approval, additional bonds are typically issued within 24-48 hours. Don't wait for the bid deadline to start the surety relationship.
Related guides
Sources cited
- Miller Act (40 U.S.C. §§ 3131-3134) — Cornell Law School Legal Information Institute, 2024
- Bid bonds, performance bonds, payment bonds — International Risk Management Institute (IRMI), 2024
- Federal Acquisition Regulation (FAR) Part 28 — Bonds and Insurance — U.S. General Services Administration (GSA), 2024