Question 1

How much does a performance bond cost?

Accepted Answer

Typically 1–3% of the contract value per year. A $1 million contract might cost $10,000–$30,000 for the bond premium. The exact rate depends on the contractor's creditworthiness, experience, and the project's risk profile. Contractors with strong track records get lower rates.

Question 2

What happens if the contractor fails and there's a performance bond?

Accepted Answer

You file a claim with the surety company. They'll investigate, then either hire a replacement contractor to finish the job, pay you the cost to complete it, or tender the bond amount. The process can take weeks or months, so it's not instant relief.

Question 3

Who pays for a performance bond?

Accepted Answer

The contractor pays the premium, but they typically build it into their bid price. So the project owner indirectly bears the cost. On a $1 million project, expect the bond to add $10,000–$30,000 to the total price.

Question 4

Is a performance bond required?

Accepted Answer

For U.S. federal government contracts over $150,000, yes — the Miller Act mandates it. Many state and local governments have similar requirements (called 'Little Miller Acts'). For private projects, it's optional but strongly recommended for large-value contracts.

Question 5

What's the difference between a performance bond and insurance?

Accepted Answer

Insurance protects the policyholder from losses. A performance bond protects the project owner from the contractor's failure — and the contractor is ultimately responsible for reimbursing the surety. If the surety pays out on a bond claim, they go after the contractor to recover their money.

Performance Bond

Definition

In Practice

Common in these contract types

Related terms

Frequently asked questions about performance bond

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