Surety Bonds
Performance Bonds for Contractors — A Complete Guide
Performance Bonds for Contractors — A Complete Guide — everything contractors need to know about surety bonds.
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What Performance Bonds Require, Cost, and How They Work in Practice
Surety bonds are a required part of doing business for most licensed contractors. Whether you need a license bond to operate legally, a bid bond to compete for public projects, or a performance bond to secure a major contract — Trade Safe helps contractors get bonded fast at competitive rates.
What a Performance Bond Guarantees
A performance bond guarantees that you — the contractor — will complete the project according to the contract terms, price, and schedule. If you default (abandon the project, become insolvent, or are terminated for cause), the surety steps in to ensure the project is completed, up to the bond amount.
When Performance Bonds Are Required
Federal law (Miller Act) requires performance bonds on all federal construction contracts over $150,000. Most states have similar ‘Little Miller Act’ requirements for state and local public projects, typically at $25,000–$100,000 thresholds. Many large private owners and commercial developers also require performance bonds.
The Surety’s Options When You Default
When a principal defaults on a bonded contract, the surety has several options: finance the contractor to complete the project, hire a completion contractor, complete the project directly, or pay the owner’s completion costs up to the bond penalty. The surety chooses the least costly option.
Performance Bond Cost
Performance bonds are priced as a percentage of contract value — typically 0.5–3% for well-qualified contractors. A $1M contract costs $5,000–$30,000 in bond premium. Rate depends on your credit score, financial strength, years in business, and project type. Specialty or high-risk projects carry higher rates.
Getting Prequalified for Performance Bonds
Surety underwriters evaluate your financial statements, work-in-progress schedule, experience, equipment, and credit before issuing performance bonds. Establishing a surety relationship before you need a specific bond — and maintaining audited or reviewed financials — positions you to obtain bonds quickly when opportunities arise.