If you're a California contractor bidding on public works projects or large private contracts, you've likely been asked for a bid bond, performance bond, or payment bond. These are often confused — and using the wrong one (or not having one when you need it) can cost you a contract or your reputation. Here's the clear breakdown.
What is a bid bond?
A bid bond is submitted with your bid on a contract. It guarantees two things:
- You submitted a serious, legitimate bid
- If you win the contract, you will actually sign it and provide the required performance and payment bonds
If you win the bid and then back out — or can't provide the required bonds — the bid bond pays the project owner the difference between your bid and the next lowest bid. Bid bonds are typically 5–10% of the bid amount.
Cost: Bid bonds are usually issued for free or at minimal cost when you have an ongoing surety relationship, because the surety expects to write the performance bond if you win.
What is a performance bond?
A performance bond kicks in after you win the contract. It guarantees that you will complete the project according to the contract terms. If you default — abandon the job, go bankrupt, or fail to meet specs — the performance bond pays the project owner to hire another contractor to finish the work.
Performance bonds are required on virtually all California public works projects (state law requires them on contracts over $25,000) and many large private contracts. The bond amount is typically 100% of the contract value.
Cost: Performance bond premiums typically run 1–3% of the contract amount, varying by your credit, experience, and the project type.
What is a payment bond?
A payment bond guarantees that you will pay your subcontractors, laborers, and material suppliers. If you fail to pay them, they can make a claim against the payment bond rather than filing a mechanic's lien against the project owner's property.
Payment bonds are almost always required alongside performance bonds on public works projects. On California public works over $25,000, the Miller Act and Little Miller Act require both.
Most California contractors need all three at different stages of the same project — bid bond to get the job, then performance and payment bonds to execute it. We set up the whole package.
— Hakob Kuyumjyan, Blackstone Insurance ServicesKey differences at a glance
Bid Bond — Submitted with bid. Guarantees you'll sign the contract if you win. Protects the project owner from bid withdrawal.
Performance Bond — Required after award. Guarantees project completion per contract terms. Protects owner if you default.
Payment Bond — Required alongside performance bond. Guarantees payment to subs and suppliers. Protects workers and material suppliers.
When do you need each one?
- Public works in California over $25,000 — performance and payment bonds required by law
- Federal government contracts over $150,000 — all three bonds required under the Miller Act
- Large private commercial projects — owner may require performance and payment bonds contractually
- Bidding competitive projects — bid bonds are standard practice even when not legally required
Need a bid bond, performance bond, or payment bond?
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