What is the cost of Performance and Payment Bonds?

Typical Cost (Premium Rate)

• Standard range: 1% to 5% of the total contract amount.

• Example: On a $1,000,000 contract, the bond premium could be $10,000 to $50,000.

📊 What Affects the Rate?

1. Contract Amount

   • Larger contracts = higher total premium, though rates often decrease as size increases (volume discount effect).

2. Contractor’s Financials

   • Strong credit, good financial statements, and solid project history = lower rate.

   • Weaker credit or limited experience = higher rate (or might need collateral).

3. Type of Project

   • Public vs. private jobs, and the complexity of the project.

   • Riskier or specialized projects may lead to higher premiums or longer duration contracts beyond 12 months.

4. Bonding Capacity

   • The more projects you're bonded for at once ( bonded work on hand) the more scrutiny you might face.

🔄 Combined Bonds

• Performance and Payment Bonds are often issued together as a single premium, not double.

• So if you're told "the bond rate is 2%", that usually covers both.

💡 Quick Example:

Say you're awarded a $2,000,000 construction contract, and your bond premium is quoted at 1%.

• Cost = $40,000 total for both performance and payment bonds.

• Other factors to consider: Please review contract terms and conditions and check for damages including liquidated damages and consequential damages and other terms that may be adverse to you and the Surety including checking for warrantee which may go in excess of what the Surety will agree to bond. Also check for special insurance requirements which may be difficult and costly to obtain. These items will also be factors in determining bond rate. It is always best to Provide your Service Insurance Company bond underwriter this information who should be able to point out key risk factors and ball park premium cost. It is best to have a qualified construction law firm review the bid specifications and contract terms before you take the next steps in the process.