What is the difference between a performance bond, a payment bond, and a bid bond?

The three bonds cover different failure points on the same job. The bid bond, usually 5 to 10 percent of the bid, protects the owner during procurement and is commonly issued at no separate charge inside a surety program. The performance bond, usually 100 percent of the contract value, protects the owner during construction: if the contractor defaults, the surety arranges completion or pays the loss up to the bond amount. The payment bond, also typically 100 percent, protects the supply chain, giving subcontractors and suppliers a claim route on public projects where they cannot lien government property.

Federal work requires them under the Miller Act and state work under the Little Miller Acts, so contractors qualify for all three at once through one Underwriting package. None of them is insurance for the contractor: if the surety pays, the contractor repays it under the Indemnity agreement.