Performance and/or Payment 
Bond

Performance and/or Payment 
Bond Information

It is customary to issue a performance and a payment bond together, as they are usually complementary. Performance bonds guarantee that the the project and the other in relation to other parties involved, such as subcontractors. Furthermore, all publicly funded projects are bound by the Miller Act to have both payment and performance bonds in place on contracts that exceed $150,000. According to the Miller Act, the sides who have a right to a claim on a payment bond are:
  • all first-tier subcontractors, suppliers and laborers to the general contractor, and
  • all second-tier subcontractors, suppliers and laborers who have a direct contract with a first-tier subcontractor.
Payment Bond Definition: Typically required in conjunction with performance bonds, payment bonds are contract bonds that guarantee subcontractors and material suppliers will be paid. The parties that make up the payment bond agreement are the principal (contractor), the obligee (the project owner) and the surety bond company providing the bond. While the sides receiving compensation in the case of a payment bond claim are subcontractors, suppliers and laborers, it is the project owner who is the obligee, because they are the ones who need protection against claims by those parties in the case of contractor default. If, for some reason, a contractor doesn’t pay those parties within a reasonable timeframe, a claim can be made against the bond. The surety who issued the bond then steps in and takes care of all pending financial obligations of a contractor towards those parties. Payment bonds are usually submitted to obligees alongside performance bonds, which is why it is common to refer to them together as a ‘performance and payment bond’.

Three party agreement

Surety Bond Definition: The definition of a surety bond is as follows: A surety bond is a binding agreement between three parties. This agreement sets forth a financial guarantee by one party ( “surety” ) to another party ( “obligee” ) that a third party ( “principal” ) will fulfill required obligations to the obligee, and that state, federal, and local laws and applicable regulations will be adhered to. Let’s examine each of the three parties.

Learn more about surety bonds

Bad Credit – Fast Approvals – Lowest Rates Available.

Piggy Bank Icon
  • Credit below 650 and/or have blemishes on credit report.
  • 
Average cost is 5-15% of the bond amount.
  • Available for all commercial bonds.

Why does credit matter? Applying for a surety bond is similar to applying for a loan. You are asking a surety company to back you financially. Reviewing credit is the best method for the surety to understand their risk. All sureties review credit as a view only and should have no effect on your credit score. While it is true that bad credit makes it harder to obtain a competitive quote, we are committed to making sure all of our customers have access to the best possible rates. While we can’t guarantee that we can provide a bond for the most extreme bad credit situations, we strive to make sure no stone is unturned! In other words, if you are insurable, we will get it written. Contact us today and let us put together an online quote for you that will exceed your expectations.

Working with trusted insurance companies