Bonding (payment and performance bonds)

Bonding refers to surety bonds a contractor obtains for a project. A performance bond assures the owner that the work will be completed according to the contract; a payment bond assures that subcontractors and suppliers will be paid. If the contractor defaults, the surety steps in up to the bond amount and then looks to the contractor to recover what it paid.

Bonds are required on most public construction above thresholds set by federal and state law, and on many private jobs. Sureties underwrite the contractor's financial statements, experience and working capital, and typically require personal indemnity from the owners. For subcontractors, a payment bond is the main protection on public work, where mechanics liens are not available.