What it is
A performance bond is a three-party agreement. The contractor (the principal) promises to complete a project under its contract. The project owner (the obligee) is the party protected. The surety is the company that stands behind the contractor's promise.
If a contractor defaults, the surety may investigate and, depending on the bond and the facts, may arrange for the work to be completed or respond in other ways the bond allows. It is not the same as insurance. A surety generally expects the contractor to be responsible for any losses.
Performance bonds are often paired with payment bonds, which relate to paying subcontractors and suppliers. Both are part of contract surety, and together they are common on many public projects and some private ones.
How it’s traditionally been approached
Public projects have long been where performance bonds are most often required, since public owners typically want assurance that taxpayer-funded work will be finished. Requirements differ by state, agency and project, so each bid package spells out its own terms.
Private owners, lenders and developers sometimes ask for performance bonds too, especially on larger or higher-risk work. General contractors may also ask specialty contractors and subcontractors to provide bonds, so the need can pass down the project chain.
Contractors have traditionally worked with a surety agent or broker who submits information to a surety company for review. Underwriters commonly look at a contractor's experience, financial strength, work history and the project in question. Outcomes vary, and approval is never certain.
How the right surety agent may help
The right surety agent may help you understand which bonds a project calls for, what the owner's bid documents ask for, and how to prepare. An agent who works with contractors like you, whether a general contractor or a specialty trade, may know what questions underwriters tend to raise.
A first conversation is usually a general discussion about your company, the kinds of projects you pursue, and your financial records. The agent may explain what documents are commonly requested, such as financial statements and work-in-progress information, and how the process generally moves.
Good questions to ask include: Which surety markets do you work with? What does the bonding process look like for my type of work? What will the project owner or contracting agency require? How can I build a stronger bonding relationship over time? Always confirm requirements with a licensed agent and the project owner.
The bigger picture
Taking on a bonded project can bring both opportunity and pressure. Questions about paperwork, financial disclosure and whether you'll qualify can feel stressful, especially when a bid deadline is close. Understanding the process ahead of time may help bring some peace of mind.
Business owners also carry personal worry about finances and their team's livelihoods. Planning early, asking questions and building trusted professional relationships may make the decision feel more manageable. If the stress of running a business is weighing on you, Providers.plus may help you find wellbeing resources.
Keep in mind
- This page is educational only and is not legal, financial or insurance advice.
- Bonding requirements, amounts and procedures vary by state, agency and project, so confirm them with a licensed surety agent or broker and the relevant project owner, licensing board or contracting agency.
- No agent or directory can guarantee bond approval, a specific bond capacity or a contract award.
- Constructionperformancebond.com is an independent directory and does not provide professional advice.
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Frequently asked questions
What is a performance bond in construction?
A performance bond is a construction bond that helps protect a project owner if the contractor can't complete the work under the contract. It involves three parties: the contractor, the owner and the surety. It is different from insurance because the contractor generally remains responsible to the surety.
Who needs a performance bond?
Contractors are typically asked for one when the project owner requires it in the contract or bid documents. This is common on public work and sometimes applies to private projects. Requirements vary, so confirm with the project owner or contracting agency and a licensed surety agent.
What is the difference between a performance bond and a payment bond?
A performance bond relates to the contractor completing the project under the contract. A payment bond relates to the contractor paying subcontractors, laborers and suppliers. They are often required together, but each serves a different purpose.
Do specialty contractors need performance bonds?
Sometimes, yes. Specialty contractors may be asked to provide bonds when they work as subcontractors, or when a general contractor or owner requires it. It depends on the project and its contract terms, so check with the party requiring the bond.
How do I get a performance bond?
Contractors generally work with a licensed surety agent or broker, who submits an application and supporting information to a surety company. The surety reviews the contractor and the project before deciding. Approval is never guaranteed, and the agent can explain what to expect.
Can a surety agent help me qualify for a construction bond?
A surety agent may help you understand what underwriters commonly look at and how to organize your information. They can't promise approval or a particular bond capacity. The right agent may help you prepare and build a relationship with surety markets over time.
Educational resource. Construction Performance Bond shares general information and connects people with independent surety agents. It is not professional advice. Talk with a qualified professional about your own situation.