What a performance & payment bond is
Performance and payment bonds usually come as a pair once you win a job. Public owners require them on most public works over a set contract value, and many private owners and lenders ask for them too.
Performance bond
Guarantees you'll finish the work the way the contract says. If you default, the surety arranges for the work to be finished or pays the owner, up to the bond amount.
Payment bond
Guarantees your subcontractors, workers and suppliers get paid. On public jobs they can't put a lien on public property, so the payment bond is how they get paid if you don't pay them.
In California
California requires a payment bond on every public works contract over $25,000 (Civ. Code § 9550), for at least 100 percent of the contract amount. State agency contracts also require separate performance and payment bonds under Public Contract Code Sections 10221 and 10222.
- Bonds on state agency contracts must be executed by an admitted surety insurer, not deposits in lieu of bond (PCC 10221).
- The payment bond must be given before work starts (Civ. Code 9550).
You need this bond if you're
- A general contractor awarded a public works contract
- A subcontractor whose subcontract requires bonding
- A contractor on a private job where the owner or lender requires bonds
- A design-builder or developer delivering public improvements
What the surety looks at
Your business, credit, experience and the contract itself. Larger contracts usually need financial statements, a work-in-progress schedule and bank references.