Payment Bond Guide: Cost, Coverage & How to Get Bonded
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by A payment bond guarantees that subcontractors, suppliers, and laborers on a construction project get paid for their work and materials. It’s usually issued together with a performance bond, and it’s mandatory on federal projects over $150,000 under the Miller Act. Payment bonds protect the supply chain from non-payment and help owners avoid mechanic’s liens. Premiums are typically bundled with performance bonds, often around 3% of the contract price for qualified contractors, with bad-credit options available.
What is a Payment Bond?
A payment bond guarantees that all subcontractors, suppliers, and laborers involved in your construction project will receive payment for their work, services, and materials.
Who Benefits from Payment Bonds?
- Subcontractors — Guaranteed payment for their work
- Material Suppliers — Protected against non-payment
- Laborers — Ensures wages are paid
- Project Owners — Prevents mechanic’s liens on property
- General Contractors — Demonstrates financial stability
When Are Payment Bonds Required?
| Project Type | Requirement |
|---|---|
| Federal Projects (Miller Act) | Required for all federal construction contracts over $150,000. Must be issued alongside performance bond. Protects all tiers of contractors and suppliers. |
| State & Local Projects (Little Miller Acts) | Most states require payment bonds on public projects. Threshold amounts vary by state. Check your state’s specific requirements. |
| Private Projects | Not legally required but increasingly common. Often required by project owners and lenders. |
Payment Bond vs Performance Bond
Payment and performance bonds serve different purposes, but they’re often issued together:
| Feature | Performance Bond | Payment Bond |
|---|---|---|
| Guarantees | Project will be completed | Contractors/suppliers get paid |
| Protects | The project owner | Subcontractors, suppliers, laborers |
| Covers | Completion costs if contractor defaults | Unpaid labor, materials, and services |
Together, they provide complete protection for all parties involved in a construction project. Learn more about performance bonds.
How Much Do Payment Bonds Cost?
Payment bond costs are typically bundled with performance bond premiums. When issued together, expect the combined premium to be 3% of the contract price for standard credit.
Combined Performance & Payment Bond Pricing:
- Standard Rate: 3%
- Bad Credit/No Credit: 5% – 15% (collateral may be required)
Factors affecting cost:
- Credit score
- Financial strength
- Industry experience
- Project type and size
- Claims history
Payment Bonds with Bad Credit
BondsExpress specializes in payment bonds for contractors with bad credit.
Approval is based on:
- Contractor experience
- Project history and success rate
- Collateral options available
Available for:
- Credit scores below 650
- Past bankruptcies
- Past tax liens or judgments
- Limited bonding history
- New contractors
Frequently Asked Questions
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Who can make a claim on a payment bond?Contractors, material suppliers, equipment lessors, and laborers who have not been paid for their work or materials on a bonded project.
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Do payment bonds prevent mechanic’s liens?Yes. On public projects, payment bonds serve as a substitute for mechanic’s lien rights. Subcontractors cannot file liens but can make claims against the payment bond instead.
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Are payment and performance bonds always required together?On federal and most state public projects, yes. They must be issued together. On private projects, requirements vary.
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