Bid, Performance & Payment Bonds

Public work almost always requires surety bonds (see the Bonds course).

The bonds

• Bid bond — submitted with your bid; guarantees you'll sign the contract at your bid price if you win.
• Performance bond — guarantees you'll complete the project.
• Payment bond — guarantees your subs and suppliers get paid (required on federal work by the Miller Act, and on state work by "Little Miller Acts").

Bonding capacity

You can only bid what your surety will bond you for — so building strong financials and a clean track record (and good books) directly determines the size of public work you can pursue.

Going Deeper (Intermediate)

Public jobs require bonds: a bid bond with your bid, then performance + payment bonds if you're awarded (often 100% of the contract). The payment bond protects subs/suppliers because you can't lien public property.

Advanced / Pro-Level

The public-bond framework:

• The Miller Act (federal) requires performance and payment bonds on contracts over $150k; the payment bond protects subs who follow notice and deadline rules. State Little Miller Acts mirror it.
• Bond cost tracks your surety credit; you need bonding capacity to bid at all — a real barrier for new firms (build capacity via clean financials and JV/mentor-protégé).
• You can require subs to bond back to you to transfer risk on large/risky scopes.

Practice Challenge

A new contractor wants to bid a $500k city project but his surety will only bond him to $250k. What's the obstacle and a path forward? (Answer: insufficient bonding capacity blocks the bid (public work requires the bonds) — he must build capacity (working capital, clean financials) or pursue it via a JV/mentor-protégé with a stronger-bonded partner to qualify.)

In Practice

A contractor wins a public job but can't get bonded for that size — and loses it. Your bonding capacity determines how big a public job you can even pursue.

Common Mistakes to Avoid

• Bidding beyond your bonding capacity
• Confusing the bond types
• Weak financials that limit bonding

Takeaway: Public work needs bid, performance, and payment bonds — and your bonding capacity caps how big a public job you can pursue.

Educational overview — not legal advice. Public-contracting rules, wage requirements, and bond thresholds vary by agency and jurisdiction and change; verify the current rules for each project.