What it is
A construction performance bond is a three-party agreement. The contractor (called the principal) promises to complete the work, the project owner (the obligee) is the party being protected, and the surety company stands behind the contractor's promise.
If a contractor defaults on the contract terms, the bond may give the owner a way to seek completion of the project or remedy for the failure, depending on the bond's wording and the contract. It is not the same as insurance for the contractor. The contractor may still be responsible to the surety for what the surety pays out.
Performance bonds are often paired with payment bonds, which relate to paying subcontractors and suppliers. Bonding requirements, amounts and procedures vary by state, agency and project, so each job's contract documents are the place to start.
How it’s traditionally been approached
Performance bonds have long been required on many public works projects, and some private owners ask for them too. Contractors typically learn about a bonding requirement in the bid documents or contract.
The traditional path involves working with a surety agent or broker who submits information about the contractor to a surety company. Sureties generally look at a contractor's experience, financial health, work history and the project at hand.
Subcontractors are sometimes asked to provide bonds as well, usually by a general contractor who wants similar assurance further down the chain. Each request may come with its own form, wording and timing.
How the right surety agent may help
A knowledgeable surety agent may help you understand what a specific project is asking for, which bond forms may apply, and what information a surety company is likely to want to see. They may also help you think through how bonding fits with your growth plans.
A first conversation is often a general discussion about your business, the kinds of projects you pursue and the documents involved. You may be asked about financial statements, project experience and the contract or bid requirements in front of you.
Good questions to ask include: Which sureties do you work with? What does the bond form in my contract require? What information should I prepare? How does bonding capacity generally develop over time? Approval, capacity and contract awards are never guaranteed, and an agent can only explain the process.
The bigger picture
Taking on bonded work can feel like a big step. Questions about paperwork, finances and whether you are ready may weigh on your mind, and that is a normal part of growing a contracting business.
Clear information and a patient guide may make the process feel more manageable and help you make decisions with more confidence. If stress is affecting your wellbeing, Providers.plus may help you find supportive resources, and the 988 Lifeline is available if you are ever in crisis.
Keep in mind
- Bonding requirements, amounts and procedures vary by state, agency and project, so confirm details with the project owner or contracting agency.
- Always confirm specifics with a licensed surety agent or broker before making decisions.
- This directory is independent and is not a professional advisor, and nothing here guarantees bond approval, capacity or a contract award.
- Read your bond form and contract carefully, since obligations to the surety may continue after a bond is issued.
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Frequently asked questions
What is a performance bond in construction?
A performance bond in construction is a surety bond that helps assure a project owner the contractor will complete the work according to the contract. It involves three parties: the contractor, the project owner and the surety company. Details depend on the bond form and the contract.
Who needs a performance bond for construction?
Contractors are the ones who generally provide it, usually when a project owner or contracting agency requires it in the bid or contract documents. Requirements vary by state, agency and project. Confirm with the project owner and a licensed surety agent.
Is a performance bond the same as insurance?
No, they work differently. A performance bond mainly protects the project owner, and the contractor may still be responsible to the surety for any amounts the surety pays. A licensed agent can explain the differences for your situation.
What is the difference between a performance bond and a payment bond?
A performance bond relates to completing the work under the contract, while a payment bond relates to paying subcontractors and suppliers. They are often requested together on the same project. Your contract documents will say which are required.
How does a contractor get a performance bond?
Contractors typically work with a surety agent or broker, who submits information about the business and project to a surety company. The surety generally reviews things like experience and financial information. Approval is never guaranteed.
Do subcontractors need performance bonds?
Sometimes. A general contractor may ask subcontractors for bonds to carry similar assurance down the chain, but it depends on the project and contract. Ask the party requesting the bond and a licensed surety agent what applies.
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.