Bonding
Performance vs Payment Bonds: What's the Difference?
7 min read · Updated August 15, 2026
Quick answer
On public construction you'll almost always need two bonds at award, and they protect different people. A performance bond guarantees the project gets finished according to the contract — protecting the government. A payment bond guarantees your subcontractors and suppliers get paid — protecting them. They're issued together and work as a pair.
Key takeaways
- Performance bond → protects the owner: the work gets completed.
- Payment bond → protects subs and suppliers: they get paid.
- Both are provided after award and are often each 100% of the contract value.
- The Miller Act requires them on most larger federal projects; states have 'Little Miller Acts'.
- Payment bonds matter because you generally can't lien public property.
Performance vs payment bond at a glance
| Attribute | Performance bond | Payment bond |
|---|---|---|
| What it guarantees | The project is completed per the contract | Subcontractors and suppliers get paid |
| Who it protects | The government (project owner) | Subs, suppliers, and laborers |
| Provided when | After award, before work starts | After award, before work starts |
| Typical amount | Often 100% of the contract value | Often 100% of the contract value |
| If the contractor defaults | Surety funds completion or pays damages | Surety pays unpaid subs/suppliers |
Why the payment bond exists on public work
On a private project, a subcontractor or supplier who doesn't get paid can file a mechanic's lien against the property. You generally can't lien public property — a school or a courthouse can't be encumbered that way. The payment bond fills that gap: it's the protection that lets subs and suppliers on a government job recover what they're owed if the prime defaults. That's why public owners require it alongside the performance bond.
When they're required
On federal projects, the Miller Act generally requires performance and payment bonds on construction contracts above a statutory threshold (commonly cited at $150,000, with alternative payment protection available for smaller contracts). Most states have their own "Little Miller Act" laws imposing similar requirements on state and local public works, each with its own thresholds. Always confirm the specific bonding requirement in the solicitation.
How they fit with the bid bond
These two come after award. Earlier, at bid time, you provide a bid bond that guarantees you'll sign the contract and furnish exactly these performance and payment bonds if you win. All three come from your surety, which is why building bonding capacity early is so important for public work. For the bigger picture, see How to Win Government Contracts.
Frequently asked questions
What is the difference between a performance bond and a payment bond?
What is the difference between a performance bond and a payment bond?
A performance bond guarantees that the contractor will complete the project according to the contract, protecting the government as the project owner. A payment bond guarantees that the contractor's subcontractors and suppliers will be paid, protecting them. They're issued together at award and work as a pair — one protects the owner, the other protects the supply chain.
Why do public projects need a payment bond if there are lien rights?
Why do public projects need a payment bond if there are lien rights?
On private projects, unpaid subcontractors and suppliers can file a mechanic's lien against the property. You generally can't lien public property, so that protection doesn't exist on government work. The payment bond replaces it: it's the mechanism that ensures subs and suppliers on a public job can still get paid if the prime contractor defaults.
When are performance and payment bonds required on federal projects?
When are performance and payment bonds required on federal projects?
Under the federal Miller Act, performance and payment bonds are generally required on federal construction contracts above a statutory threshold (commonly cited at $150,000 for the bonds, with alternative payment protection available for smaller contracts). Most states have their own 'Little Miller Act' laws requiring similar bonds on state and local public works, each with its own thresholds.
How much do performance and payment bonds cost?
How much do performance and payment bonds cost?
The premium is typically a percentage of the contract value — often in the range of about 1% to 3%, depending on the contract size and the contractor's financial strength and experience. Both bonds are usually quoted together, and stronger financials and past performance earn lower rates and more capacity.
Do I need a bid bond too?
Do I need a bid bond too?
Usually yes, earlier in the process. A bid bond guarantees you'll honor your bid and provide the performance and payment bonds if you win, so it comes first — at bid time — while the performance and payment bonds are provided after award. See our bid bonds guide for how that step works.
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