A payment bond — also called a labor and material bond — is a three-party guarantee. The contractor (the principal) promises the project owner (the obligee) that everyone who supplies labor or materials to the job will be paid. The surety company backs that promise. If the contractor doesn’t pay, an unpaid subcontractor or supplier can claim against the bond. It isn’t insurance for the contractor: if the surety pays a claim, the contractor must repay it.
Why Payment Bonds Exist
On a private job, an unpaid subcontractor or supplier can record a mechanic’s lien against the property. Public property — schools, roads, government buildings — can’t be liened. The payment bond gives those workers and suppliers something to claim against instead.
When Is a Payment Bond Required?
California Public Works
Under Civil Code § 9550, a direct contractor awarded a public works contract involving more than $25,000 must give a payment bond before starting work. Under § 9554, the bond must be in an amount not less than 100% of the total contract price.
Federal Projects (Miller Act)
The federal Miller Act requires payment and performance bonds on federal construction contracts over $150,000 (FAR 28.102-1).
Private Projects
No statute requires them on most private jobs, but owners and lenders often ask for payment and performance bonds to keep the project free of liens.
Payment and Performance Bonds (P&P Bonds)
Payment bonds are almost always written alongside performance bonds. Together they’re called payment and performance bonds, or “P&P bonds.” The performance bond guarantees the work gets finished according to the contract; the payment bond guarantees the people who did the work get paid. On a bid-bonded project, the bid bond guarantees that if you win, you’ll sign the contract and provide these bonds.
Payment Bond vs. Performance Bond
Payment bond: protects subcontractors, laborers, and suppliers who aren’t paid. Performance bond: protects the project owner if the contractor doesn’t complete the work. Most bonded public projects need both.
Who Can Make a Claim?
Subcontractors, laborers, and material suppliers who furnished work or materials to the project and weren’t paid. Claim deadlines are strict, and a missed deadline can mean a lost claim.
Claim Deadlines
California Public Works
- Notice: A claimant generally must have given preliminary notice. If not, written notice to the surety and the bonded contractor is due within 15 days after a notice of completion is recorded, or within 75 days after completion if none is recorded (Civil Code § 9560).
- Lawsuit: An action on the bond must be filed within six months after the period for giving a stop payment notice expires (Civil Code § 9558).
Federal Projects
- Notice: A claimant with no direct contract with the prime contractor must give the prime written notice within 90 days after last furnishing labor or material.
- Lawsuit: Suit must be brought within one year after the last labor or material was furnished (40 U.S.C. § 3133).
How Contractors Qualify
Because a payment bond guarantees the full contract amount, underwriting looks at the contractor’s financial statements, work history, current backlog, and experience with similar jobs. Sureties use this to set your bonding capacity — the size of a single job and the total work they’ll bond. We help you put that file together and submit it to sureties that write construction bonds in California.
How Much Does a Payment Bond Cost?
The premium is based on the contract amount and on the contractor’s financial strength and experience. P&P bonds are usually priced together. We submit your application to several surety companies, and each sets its own rate, so your premium isn’t set until a surety approves you.
How to Get a Payment Bond
- Send us the bid or contract details — owner, amount, and bond forms if the owner supplies them.
- Provide financial information — for larger jobs, business and personal financial statements.
- We submit to surety companies and get you approved.
- Your bonds are issued on the owner’s required forms.