Many people are often confused by the idea that payment bonds and performance bonds are not the same thing. The reason for this confusion is that though different they are often written as one bond.
Payment bonds are a type of contract bond that assures completion of the obligee´s requirements in a satisfactory manner. This bond guarantees all participants (suppliers, subcontractors, and laborers) will be paid should the contractor default.
A performance bond guarantees satisfactory performance of all duties specified in the contract. Examples would the labor of all sub-contractors, suppliers, and payment of materials. The principal will require the performance bond once awarded the contract.