The short version
Both are contract surety bonds, and both are three-party guarantees between you (the principal), the party you are protecting (the obligee), and the surety that backs you. The difference is who they protect and what they promise. A performance bond is about finishing the work. A payment bond is about paying the people who help you do it.
| Performance bond | Payment bond | |
|---|---|---|
| Protects | The project owner | Subcontractors, laborers, suppliers |
| Guarantees | The contract is completed | Everyone below you gets paid |
| Typical amount | Up to 100% of the contract | Up to 100% of the contract |
| A claim comes from | The owner, if you default | An unpaid sub or supplier |
| Commonly required by | Owners and public agencies | Public agencies by statute |
Performance bond: finish the job
A performance bondguarantees the owner that you will complete the contract according to its terms. If you default, the surety steps in to get the work finished or to compensate the owner for the loss, up to the bond's penal sum. It is the owner's protection against a contractor who cannot deliver.
Payment bond: pay the people below you
A payment bond guarantees that your subcontractors, laborers, and material suppliers get paid for what they put into the job. On public projects, where a worker cannot place a mechanics lien against government property, the payment bond is what gives them a way to recover if you do not pay them.
Why public jobs require both
On federal work, the Miller Act requires both a performance bond and a payment bond on contracts above a set threshold. California and most other states have their own Little Miller Act that does the same for state and local public work. So on a public bid you are almost always providing both, usually each at 100% of the contract value.
Are they issued separately?
In practice, no. A surety underwrites your full bonding capacity once, then issues the performance and payment bonds together for a given contract, often on a single bond form. You qualify for the pair as one line, based on your financials, experience, and the size of the job.
What they cost
Contract bonds are priced as a percentage of the contract amount on a sliding scale, and the performance and payment bonds are quoted together as one premium rather than billed separately. If your credit or track record makes the pair hard to place, that is exactly the kind of file we work through our hard-to-place markets. Underwriting always applies, and we never promise guaranteed approval.