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Payment Bond Vs. Performance Bonds

Many people are often confused by the idea that payment bonds and performance bonds are not the same thing, after all they are typically written as the same bond, and when they are the premium is unchanged.

Construction, performance, and payment bonds are typically required as part of the contract won at bid. In rare cases either a payment bond or performance bond may be required without the other. Why is this? There really is no underlying theme to when only one vs the other will be required. When this happens, it may simply be an error on the part of the people putting together the project, since 98% of the time, both are required. Just make sure to read your contract carefully to see which, if not both, is required.

What is a Payment and Performance Bond?

Payment Bonds


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. Learn more about payment bonds.

Did you know that 80% of claims happen against the payment bond?

Performance Bonds


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. Learn more about performance bonds.

So in short, the difference is payment bonds cover payment of materials and workers, and performance bonds make sure the work is done to specification and per the terms of the contract.

Performance and Payment Bond Cost

Whether your contract required a Performance Bond, Payment Bond, or a Payment and Performance Bond together, the premium rate does not change. In essence, it can be viewed as a buy one get one free situation. Now because of this, in those situations discussed earlier about only needing one bond or the other, there is no discount, the rate remains the same.

Knowledgeable Performance Bond Companies Can Save Your Company

Contract bonds are time sensitive and require a different, more intensive, kind of underwriting than other types of bonds. Choosing the proper bonding company can not only save you money on the bond itself, but can also make sure you get approved in a timely manner, foregoing the usual back and forth chase for additional information that many inexperienced agencies will put you through.

If you already know what bond you are looking for, please visit our application page. If you want to learn more about various bonds, visit our surety bond information page.