Side by side
- A performance bond protects the owner. A payment bond protects the people who supply labor and material.
- A performance bond answers a contractor that fails to finish. A payment bond answers a contractor that fails to pay.
- Both come from a surety. Both are usually issued together when the contract is signed.
How a performance bond works
If the contractor defaults, the owner can call on the surety. The surety has several options under the bond. It can finance the contractor, bring in another contractor or pay the owner. The bond form sets the options and the limits.
How a payment bond works
A subcontractor or supplier that is not paid can make a claim on the payment bond. On public projects this matters a great deal. A subcontractor generally cannot place a lien on public property. The payment bond takes the place of lien rights.
Claims have notice rules and deadlines. They depend on the bond, on your place in the contract chain and on the law that applies. Miss a deadline and the claim can be lost. Ask an attorney early if you are not being paid.
Where the requirement is stated
Look in the instructions to bidders, the bond forms in Division 00 and the supplementary conditions. Federal law and state laws require bonds on many public projects. Private owners decide for themselves.
What a subcontractor should do
- Check the bid documents to see if the prime contract is bonded.
- Check if the general contractor requires bonds from subcontractors.
- Include the bond cost in your price if you must supply one.
- Ask for a copy of the payment bond when you sign the subcontract.
- Know the notice deadlines before a payment problem starts.
This article is general information, not legal advice. Check the bid documents and the law in your state.
Bid documents · Updated 11 Nov 2026