Payment and Performance Bond Costs
Contract bonds for construction projects are commonly used to guarantee projects are completed according to set terms and conditions. The most common types of contract bonds are payment and performance bonds.
What Is The Difference Between a Payment and Performance Bond?
Payment and performance bonds are types of contract bonds that are often issued together, but serve different purposes.
Payment bonds ensure subcontractors and material suppliers are paid according to the contract. These bonds are critical for jobs on public property where mechanics’ liens cannot be used.
Performance bonds guarantee that a contractor will complete a construction project according to the agreed-upon contract. If a contractor defaults on a project, the bond amount is used to recover the project owner’s losses.
How Much Do Payment and Performance Bonds Cost?
Typically, payment and performance bonds are issued together for a single premium fee. Premium rates typically cost 3% of the total project value.
For example, a qualified contractor would pay $3,000 for payment and performance bond coverage on a $100,000 construction project.
However, if you just need one or the other, rates may differ:
- Payment Bond Rates: 1–5% of the total contract amount
- Performance Bond Rates: Typically 3% of the total bond amount
The best way to determine your exact price is to request a free payment and/or performance bond quote.
What Impacts Payment and Performance Bond Rates?
Premiums vary based on the project’s bid amount, your financial credentials and your past work history. Both payment and performance bonds require underwriting.
Underwriters often use the following factors to determine exact rates.
1. Project size and contract terms
Payment and performance bond premiums factor in project size, contract terms and potential risk levels. Underwriters will review the fine print of a contract, length of the project, monetary cost, scope of work, and any additional maintenance clauses that contribute to potential risk.
High-risk projects and contracts might increase your bond premium.
2. Coverage amount
Higher coverage bonds typically have higher premiums. For example, a $500,000 bond with a 3% premium would cost $15,000. But if your bond is only $100,000, a 3% premium is just $3,000.
3. Personal credit score
Personal credit score is one of the most important factors impacting not just your price but your eligibility for payment and performance bonds. To qualify for the SuretyBonds.com construction bonding program, you must have a credit score of 700+.
4. Financial credentials
Underwriters often look at other financial credentials to verify the reliability of the applicant. Some financials documents you may need to submit include to the following:
- Balance sheets
- Income taxes
- Bank statements
- Loan agreements
- Proof of asset ownership
Asset ownership and positive financial statements indicate financial stability and can lower your quote.
5. Work history
Industry experience can lower the risk for certain bonds. Underwriters might consider the following when determining your rate:
- How long your company has existed
- How long you have been a contractor
- If you have been bonded before
- How many jobs you have held and at what timeline
- Any past incidents
Some surety markets will also request proof that you completed prior jobs before approving a new one.
If you get a pre-approved construction bond line, the underwriting process may be faster.
How to Get a Performance or Payment Bond
Working with SuretyBonds.com is the quickest and easiest way to get a payment or performance bond. Just follow these four steps:
- Step 1: Apply for your bond online
- Step 2: Provide any additional information as needed
- Step 3: Pay for your quote invoice online or over the phone
- Step 4: File the bond form with the project owner or regulating body
We’re here to help streamline your bond process and find you the best rates on the market. Get your free quote today!
Can I Get a Payment and Performance Bond With Bad Credit?
If you're a newer contractor or don’t meet the 700+ credit score requirement, you can request payment and performance bond backing through the SBA Surety Bond Guarantee Program.
The Small Business Administration (SBA) helps entrepreneurs grow by connecting them with lenders and funding. Their surety bond program helps small contractors qualify for construction bonds by acting as a guarantor.
If you have more questions, call (800)-308-4358 to discuss your options with a surety expert.
Can I Finance My Premium?
Yes, to make payment and performance bonds more accessible, some of our markets offer premium financing plans.
If you qualify, you'll pay 30–40% of the total premium upfront and the remaining balance in monthly installments over the following 4–6 months.
