construction surety bond
What is a Payment Bond?
A 2025 Guide for Contractors and Project Owners
Getting this surety bond is easy! Let us help you get bonded.
In the world of construction, financial trust is paramount. Project owners need confidence that every party involved in a job—suppliers, subcontractors, and laborers—will be paid in full and on time. That’s where a Payment Bond comes in.
This guide will explain what a Payment Bond is, how it works, who needs it, how much it costs, and how to obtain one. Whether you're a contractor, subcontractor, or project owner, understanding payment bonds is essential to protecting your financial interests and staying compliant with the law.
What is a Payment Bond?
A Payment Bond is a type of surety bond that guarantees that contractors will pay subcontractors, suppliers, and laborers for work and materials used on a construction project. It’s typically required for public construction projects and increasingly used in large private contracts as well.
Without a payment bond in place, unpaid parties might have to file liens or pursue legal action—creating costly delays and complications. This bond acts as a safety net for everyone downstream in the construction contract.
Who Needs a Payment Bond?
- General Contractors bidding on federal or state-funded public works projects are usually required to post a payment bond.
- Many private project owners are now requiring payment bonds as an added protection.
- Subcontractors may also be required to post payment bonds if they’re managing large scopes of work.
Payment bonds are commonly required alongside performance bonds, which guarantee that the job will be completed according to the contract.
Are you ready to get started? Contact us and let us help you secure a Payment Bond!
How Do Payment Bonds Work?
There are three parties involved in a payment bond agreement:
- Principal – The contractor purchasing the bond.
- Obligee – The project owner or public agency requiring the bond.
- Surety – The bonding company that guarantees the obligation.
If the contractor fails to pay subcontractors or suppliers, those unpaid parties can file a claim against the payment bond. If the claim is valid, the surety pays out up to the bond amount. The contractor is then obligated to reimburse the surety.
Legal Requirements: Miller Act & Little Miller Acts
- The Miller Act is a federal law requiring payment bonds for all public construction projects over $150,000.
- Most U.S. states have their own version of this law, commonly called Little Miller Acts, requiring payment bonds on state-funded projects.
Failure to comply with these laws can result in contract disqualification or legal penalties.
How Much Does a Payment Bond Cost?
The cost of a payment bond—known as the premium—is typically 1% to 3% of the total contract value, depending on several factors.
Factors That Influence Bond Cost:
| Factor | Description |
|---|---|
| Contract Amount | Larger contracts usually require higher bond limits, increasing the premium. |
| Contractor's Credit | Higher credit scores generally result in lower rates. |
| Financial Strength | Sureties assess business financials, experience, and current obligations. |
| Project Type | Government, private, residential, or infrastructure all carry different levels of risk. |
Example:
- Contract Value: $500,000
- Bond Rate: 1.5%
- Payment Bond Cost: $7,500
For qualified applicants, Surety Bond Authority offers highly competitive rates, and we work with various carriers to ensure approval—even if your credit is less than perfect.
What’s Included in a Payment Bond?
Payment bonds generally cover:
- Subcontractors
- Material suppliers
- Laborers
- Equipment lessors (in some cases)
- Other vendors providing services to the project
They do not cover claims from the general contractor themselves or from third parties outside the contract chain.
Payment Bond vs Performance Bond
Though often issued together, these bonds serve different purposes:
| Bond Type | Guarantees |
|---|---|
| Payment Bond | Everyone working on the project gets paid. |
| Performance Bond | The project is completed according to the contract. |
Many public agencies and large private owners require both to ensure comprehensive protection.
Benefits of a Payment Bond
- ✅ Protects workers and suppliers from non-payment
- ✅ Ensures project continuity without legal or financial delays
- ✅ Improves contractor credibility in competitive bidding
- ✅ Mitigates lien risks for property owners
- ✅ Legal compliance for public contracts
How to Get a Payment Bond
The process is straightforward and typically includes:
- Application – Submit your business information, financials, and project details.
- Underwriting – The surety reviews your credit, experience, and current workload.
- Quote Issuance – You’ll receive a premium quote and payment instructions.
- Bond Issuance – Once paid, the bond is issued and delivered for court or contract filing.
Required Documents:
- Business financial statements
- Personal credit report
- Contract or bid specifications
- Resume or project experience summary
Need it fast? We offer expedited approval and issuance for urgent project deadlines.
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What Happens if a Claim Is Filed?
If a subcontractor or supplier goes unpaid:
- They can file a claim with the surety.
- The surety investigates the claim.
- If the claim is valid, the surety will compensate the claimant up to the bond limit.
- The bonded contractor is legally obligated to reimburse the surety.
Bond claims can affect your reputation and bonding capacity, so it's crucial to manage payments carefully.
Do You Need a Payment Bond for Your Project?
You likely need a payment bond if:
- You're bidding on a government project over $150,000.
- The project owner requires both performance and payment bonds.
- You're a subcontractor required to furnish one by your GC.
- You want to protect your business from supplier disputes.
Still unsure? Our experts can help determine exactly what's required for your bid or project.
Get Started with Surety Bond Authority
At Surety Bond Authority, we’ve helped thousands of contractors across the U.S. obtain fast, affordable payment bonds. With access to multiple top-rated sureties, we provide:
- ✅ Same-day quotes
- ✅ Nationwide service
- ✅ Expert underwriting support
- ✅ Bond approvals even with credit challenges
Call us today at (800) 333-7800 or click below to get started.