Performance and payment bonds
Also called: performance bond, payment bond, P&P bonds, contract bonds, surety bonds
A performance bond guarantees the contractor will complete the contract according to its terms; a payment bond guarantees that subcontractors, laborers and suppliers will be paid. On federal construction above the Miller Act threshold both are required before work begins.
Federal requirements are FAR 28.102, implementing the Miller Act at 40 U.S.C. 3131, with the clause at FAR 52.228-15 and the forms Standard Form 25 and 25A. States require the same bonds on public construction under their Little Miller Acts, and many counties and school districts require them on service contracts as well. The surety underwrites the contractor's capacity, capital and character, which in practice means audited or reviewed financial statements, a track record and personal indemnity from the owners.
What to check: the required bond amount in the solicitation (often the full contract price), your surety's capacity for a job that size, the premium as a cost in your bid, and the SBA Surety Bond Guarantee Program under 13 CFR Part 115 if a surety will not write you alone. Bonding capacity, not price, is what keeps many small contractors off larger public work.
What it is not: optional, and not the same as insurance. A surety claim is a loan you must repay.
See also: Bid bond, Miller Act, Davis-Bacon Act, Prime contractor
Questions that use this term
Search allYour performance bond rate will drop once you have a few jobs done, especially if they are similar in size and scope to the city park project. The...
A performance bond guarantees to the owner that the contractor will complete the project according to the contract terms and conditions. The school...