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Bid bonds, performance bonds and payment bonds explained

Construction and public works bids usually need three bonds. A bid bond guarantees you'll sign if you win, a performance bond guarantees you'll finish the job, and a payment bond guarantees you'll pay subcontractors and suppliers. All come from a surety company.

Bonds protect the county, and the people who work on its projects, if a contractor fails. They're standard on public works.

The three bonds

Bond Guarantees When Typical amount
Bid bond You'll sign the contract and provide the other bonds if you win With the bid A percentage of the bid, often 5% to 10%
Performance bond You'll complete the work as contracted At contract signing Often 100% of the contract
Payment bond You'll pay subcontractors, workers and suppliers At contract signing Often 100% of the contract

Examples of state rules

  • Texas: a county public work contract needs a performance bond above $100,000 and a payment bond above $25,000 (Government Code 2253.021).
  • Iowa: bid security on public improvements is between 5% and 10% (Iowa Code 26.8).
  • Indiana: bid security is required on public works estimated over $200,000, capped at 10% (IC 36-1-12-4.5).

How to get bonded

  1. Find an agent who specializes in surety bonds.
  2. Provide financial statements, work history, references and information about the owners.
  3. The surety sets your bonding limits.
  4. For each bid, the agent issues the bid bond, then the performance and payment bonds if you win.

Start well before you need a bond. Small and new contractors may start with smaller limits and build up. Some surety programs specifically help small businesses.

Costs

Bid bonds are often free or low-cost within an established surety relationship. Performance and payment bonds cost a premium, typically a small percentage of the contract, so include it in your price.

Questions

Who issues construction bonds?

Surety companies, usually through insurance agents or brokers who specialize in bonding.

What is a bonding limit?

The largest single job, and total work in progress, that a surety will bond for you. It is based on your finances and experience.

Sources

Last reviewed Oct 30, 2026. This is general information, not legal advice. Laws and thresholds change; check the current statute and the bid documents.