Payment Bonds

A payment bond guarantees that a contractor will pay its subcontractors, laborers and suppliers for work and materials on a project. If the contractor doesn't pay, those parties can make a claim against the bond. Payment bonds are most common in construction, where they are usually issued alongside a performance bond. On public projects, where unpaid parties generally can't place a lien on the property, the payment bond is often their main protection.

How a payment bond works

The bond is an agreement among three parties: you, the contractor (principal); the project owner or agency that requires the bond (obligee); and the surety that issues it. Subcontractors, laborers and suppliers who aren't paid for their work on the project can make a claim. The surety investigates, and a valid claim is paid up to the bond amount. If the surety pays a claim, you must repay the surety.

Payment bond vs. performance bond

A payment bond protects the people who work on and supply your project by guaranteeing they are paid. A performance bond protects the project owner by guaranteeing the work is completed as agreed. Many projects require both, and sureties often issue them together as performance and payment (P&P) bonds, so you can apply for both with one application.

Bond amount and your premium

The contract sets the bond amount, which is often 100% of the contract price. That amount is the coverage required, not the price you pay. Your premium depends on the surety's underwriting, including your credit, financial statements, experience and the size and complexity of the project. If change orders increase the contract price, the bond amount may need to increase too. Request a quote for your project rather than relying on a fixed rate.

How to apply

Apply as soon as you learn the contract requires a payment bond, since bonds are usually due before work can start. Start the online application with your business information and the contract details. If the project also requires a performance bond, you can request both on the same application. WWIS will review your submission and help you with the quote, required documents and issuance. Approval and timing depend on the surety and a complete application.

Information needed to apply

Working on a federal project?

Federal law, formerly known as the Miller Act, requires a payment bond on federal construction contracts over $150,000. It generally equals 100% of the original contract price and can't be less than the performance bond. Subcontractors and suppliers who contract with you directly can sue on the bond if they are unpaid 90 days after their last work. Those a tier further down must first give you written notice within 90 days. Any suit must be filed within one year. Many states have similar laws for public projects.

Review federal bond requirements

Get help with your application

Call 888-518-8011 or email [email protected] for help selecting the bond and completing your application.