What Are Performance and Payment Bonds?

By Wyatt Cooper · Published October 22, 2026 · 3 min read

Key takeaways

A performance bond protects the owner if the contractor fails to finish; a payment bond protects the people who supply labor and material.
On federal construction contracts over $150,000, the contractor must furnish both, each normally equal to 100% of the contract price.
On public jobs, where liens usually can't attach, the payment bond is a subcontractor's main protection.

A performance bond is a surety's guarantee to the owner that the contractor will finish the work under the contract; a payment bond guarantees that the contractor will pay its subcontractors and suppliers for labor and material. On federal construction contracts over $150,000, the Miller Act and the FAR require both, each normally equal to the contract price.

The Miller Act rule

The Miller Act requires, before award, a performance bond "for the protection of the Government" and a payment bond "for the protection of all persons supplying labor and material in carrying out the work," the payment bond equal to the total amount payable and "not less than the amount of the performance bond" (40 U.S.C. § 3131(b)). The statute's text still says $100,000; the FAR applies it to construction contracts "exceeding $150,000" and asks for payment protection on contracts over $35,000 up to $150,000: a payment bond or an alternative such as an irrevocable letter of credit (FAR 28.102-1). Both bonds are normally 100 percent of the original contract price, plus 100 percent of any increase (FAR 28.102-2). Many states have similar laws for state and local public work.

Performance and payment bonds at 100%

Original contract price: $2,400,000
Performance bond: $2,400,000
Payment bond: $2,400,000
Change orders add: $100,000
Each bond after the increase: $2,500,000

Bond amounts on a federal contract (fictional)

Performance bond vs. payment bond vs. bid bond

The SBA's short version: a performance bond "ensures full completion of a contract," a payment bond "ensures full payment to the suppliers and subcontractors," and a bid bond ensures the bidder will furnish them (SBA). The bid bond ends at signing; these two run with the job. On private work, an unpaid sub's remedy is usually a mechanics lien; on bonded public work it is a claim on the payment bond. For getting paid before it comes to that, see how to get paid faster as a subcontractor.

The bottom line

The performance bond backs finishing the work; the payment bond backs paying the people who did it.

On a bonded job, ask for a copy of the payment bond before you start: it names the surety you would claim against. Join the waitlist to try Conflo.

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Sources

40 U.S.C. § 3131, Bonds of contractors of public buildings or works — U.S. Government Publishing Office (govinfo). Read October 22, 2026.
FAR 28.102-1, General (performance and payment bonds for construction) — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
FAR 28.102-2, Amount required — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
40 U.S.C. § 3133, Rights of persons furnishing labor or material — U.S. Government Publishing Office (govinfo). Read October 22, 2026.
Surety bonds — U.S. Small Business Administration. Read October 22, 2026.

Questions

Who pays for performance and payment bonds?

The contractor buys them from a surety and usually prices the premium into its bid. A GC that requires bonds from subs often asks for the premium as a separate add.

Does a payment bond protect lower-tier subs?

Under the Miller Act, first-tier subs and suppliers can sue on it once 90 days pass unpaid after their last labor or material; second-tier ones (with a contract with a sub) must first give the prime written notice within 90 days of their last labor or material (40 U.S.C. § 3133(b)(2)). Every claimant must sue within one year after its last labor or material (§ 3133(b)(4)). State bond laws vary.