Bid, Performance, and Payment Bonds for Federal Work
The three bonds that show up in federal construction, what they cover, and how to strengthen your bonding capacity.
Federal construction regularly requires three bonds: the bid bond, the performance bond, and the payment bond. Together they protect the government and the subcontractors and suppliers who work on the job.
What each one does
- Bid bond — a percentage of the bid that guarantees you will enter the contract if awarded; if you refuse, the government can recover the difference up to the bond amount.
- Performance bond — guarantees you will complete the work according to the contract; it is an assurance to the government.
- Payment bond — guarantees payment to subcontractors and suppliers, protecting them and the government from liens.
Bonding capacity
Your surety looks at working capital, financial statements, prior completed work, and your backlog when setting a single-job and aggregate capacity. Years of clean financials and finished projects build capacity. Keeping an organized financial package and meeting with your surety before you need a large bond matters.
Practical advice
Read Section I for the exact bond requirements and percentage. Never let a bid deadline pass on the assumption that the surety will perform in a day; start early.
General information for construction small businesses, not legal advice.