Payment Bond vs. Performance Bond: What’s the Difference?

Performance and payment bonds are the two core contract bonds on almost every bonded construction project. They’re frequently bundled, billed together, and even written on the same form — which is exactly why contractors and owners mix them up. This guide makes the distinction clear and explains why nearly every public project requires both.

Both build on the basics in what is a surety bond. For the full construction picture, see construction bonds explained.

Side-by-Side Comparison

What a Performance Bond Does

A performance bond guarantees the contractor will finish the project according to the contract’s terms, plans, and timeline. If the contractor defaults — abandons the job, goes out of business, or fails to perform — the project owner files a claim.
Learn more on the performance bonds page.

What a Payment Bond Does

A payment bond guarantees that everyone working under the contractor gets paid — subcontractors, laborers, and material suppliers. If the contractor doesn’t pay them, those parties file a claim against the payment bond.

This is especially important on public projects. You can’t place a mechanic’s lien on government property, so the payment bond is the only way subs and suppliers can recover unpaid amounts. That’s why federal and state law requires payment bonds on public work.

Learn more on the payment bonds page.

Why Projects Require Both

The two bonds protect different parties against different risks, so owners typically require both:

• The performance bond protects the owner from the contractor failing to complete the work.
• The payment bond protects the supply chain from the contractor failing to pay — which also protects the owner from liens and double-payment disputes.

On federal projects, the Miller Act requires both bonds on contracts over $150,000. Most states have “Little Miller Acts” imposing the same requirement on state and municipal work.

How Much Do They Cost Together?

Performance and payment bonds are usually issued together with a single combined premium based on the contract value and the contractor’s qualifications:

Contractors with credit challenges can still get bonded through specialty programs — see can I get a bid bond with bad credit?. For full pricing, see the surety bond cost guide.

How They Relate to Bid Bonds

On most bonded projects, the sequence is: a bid bond comes first (guaranteeing you’ll take the contract if awarded), then the performance and payment bonds are issued once you sign.

Frequently Asked Questions

• What is the difference between a payment bond and a performance bond?
  A performance bond guarantees the contractor will complete the project according to the contract. A payment bond guarantees the contractor will pay subcontractors, laborers, and suppliers. The performance bond protects the project owner; the payment bond protects the people working under the contractor.
• Do I need both a payment and performance bond?
  On most bonded projects, yes. They protect different parties against different risks. Federal projects over $150,000 require both under the Miller Act, and most states require both on public work under their Little Miller Acts.
• How much do payment and performance bonds cost together?
  They’re usually issued together with a combined premium of 3% of the contract value for qualified contractors, or 3–10% for credit-challenged or hard-to-place contractors.
• Who files a claim on a performance bond?
  The project owner (the obligee). If the contractor defaults — abandons the job, goes out of business, or fails to perform — the owner files a claim, and the surety arranges completion or pays the cost to complete up to the bond amount.
• Who files a claim on a payment bond?
  Unpaid subcontractors, laborers, and material suppliers. If the contractor doesn’t pay them, they file against the payment bond instead of placing a lien — which is the only recovery option on public projects where liens aren’t allowed.
• Are payment and performance bonds the same amount?
  Usually both are written at 100% of the contract value, though some owners require different percentages. They’re typically issued on the same contract and often share a combined premium.
• What is the Miller Act?
  The Miller Act is the federal law requiring performance and payment bonds on federal construction contracts over $150,000. Most states have equivalent ‘Little Miller Acts’ that impose the same requirement on state and municipal projects.
• Can I get payment and performance bonds with bad credit?
  Yes, through specialty contractor programs. BondsExpress runs bad-credit and hard-to-place programs covering contracts from $100,000 to $10 million, underwritten on the contractor’s track record rather than credit alone.

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