Performance bond cost estimator

Performance bond cost — what contractors actually pay and why

Surety bonds are one of the most misunderstood costs in contracting. They're not insurance for the contractor — they're a financial guarantee to the project owner that the contractor will perform. The premium you pay is essentially the cost of renting the surety's credit standing, not a premium for your own coverage.

Performance bond vs payment bond vs bid bond

These three bond types serve different purposes and have different rates:

• Performance bond: guarantees the contractor will complete the work per the contract. Premium: typically 1% of contract amount for qualified contractors.
• Payment bond: guarantees the contractor will pay subcontractors, suppliers, and laborers. Protects the owner from mechanic's liens. Same rate as performance bond. Usually required alongside performance bonds on public work — the two are often issued together as a 100%/100% pair.
• Bid bond: guarantees the bidder will enter into the contract if awarded. Typically 5–10% of the bid amount, but the premium cost is very low — about 0.1–0.2% of the bid — because bid bonds rarely result in claims.
• License bond: required to obtain a contractor license in many states. Flat annual premium, typically $50–$300 depending on state and bond amount required.

Who is the obligee and who is the principal?

In surety bond language: the principal is the contractor who buys the bond. The obligee is the party protected by the bond — usually the project owner or government entity. The surety is the insurance/ bonding company that issues the bond and backs the guarantee.

If the principal defaults, the obligee files a claim with the surety. The surety investigates and either arranges completion of the work or pays damages up to the bond amount. The surety then has the right of indemnification — they pursue the contractor (and often personal guarantors) to recover what they paid out.

T-listing and Treasury-listed sureties

Federal projects and most state public work require the surety company to be listed on the U.S. Treasury's Circular 570 — the "T-listed" sureties. This is an annual publication of approved surety companies and their maximum single-risk limits. If you're bidding a federal project and your surety isn't T-listed, your bid will be rejected. All major national bonding companies (Travelers, Liberty Mutual, Zurich, Hartford, Tokio Marine) are T-listed.

How credit and financials affect your rate

Surety underwriters look at four main factors:

• Personal credit score: below 650, you will pay significantly more or require collateral. Above 720, you access standard rates.
• Business financial statements: compiled statements (cheapest, prepared by your accountant) are the minimum. Reviewed statements add credibility. Audited statements (most expensive, $3,000–$15,000/year) are required for larger single-job bonds ($5M+) and multi-contract programs.
• Years in business: sureties love track record. Five or more years with clean claims history reduces rates.
• Working capital and net worth: the ratio of bonded work to net worth. Most sureties cap exposure at 10–15× net worth.

Miller Act and state requirements

The federal Miller Act (40 U.S.C. §§ 3131–3134) requires both performance and payment bonds on federal construction contracts over $150,000. The payment bond threshold is $30,000 for the payment bond alone. Most states have "Little Miller Act" equivalents with varying thresholds, typically $25,000–$100,000.

Some states require bonds for all licensed contractors (license bond), separate from project-specific bonds. License bonds are typically $10,000–$25,000 in bond amount with very low premiums.

How to reduce your rate over time

• Improve personal and business credit scores
• Provide reviewed or audited financial statements
• Build a claims-free bonding history
• Increase net worth through retained earnings (leave money in the business)
• Sign a personal indemnity agreement (most sureties require it anyway)
• Work with a specialty surety bond agent, not a general insurance agency