What Is a Surety Bond?
By BRIX Editorial Team · Updated
A surety bond is a three-party agreement in which a surety company backs a contractor's promise to an owner or government agency. If the contractor fails to perform, pay its subs or follow licensing law, the surety pays valid claims and then collects from the contractor. Contractors buy license bonds, bid bonds, performance bonds and payment bonds.
Key takeaways
- Three parties: the principal (you), the obligee (the owner or agency) and the surety (the bonding company).
- A bond isn't insurance for you. If the surety pays a claim, it expects you to pay it back.
- License bonds are set by state law: $25,000 in California, $30,000 for a Washington general contractor.
- Federal construction contracts over $150,000 require performance and payment bonds under the Miller Act.
- Contract bond premiums typically run about 0.5% to 3% of the contract amount, depending on the job and the contractor.
How does a surety bond work?
A surety bond works by putting a financially strong third party behind your promise. The contractor (the principal) buys the bond. The owner, general contractor or state agency that requires it (the obligee) can make a claim if the contractor doesn't do what it promised. The surety investigates, pays valid claims up to the bond amount, and then turns to the contractor for repayment under the indemnity agreement the contractor signed to get bonded.
That last step is why a bond is not insurance for you. Nevada's state risk management office explains the difference: traditional insurance is built to compensate for unforeseen losses, while surety "is designed to prevent loss." The surety prequalifies the contractor on financial strength and experience, so the premium is "primarily a fee for prequalification services."
What are the types of contractor bonds?
| Bond | Who requires it | What it backs |
|---|---|---|
| License (contractor) bond | State licensing boards and some cities | That you'll follow licensing law. California's bond protects consumers harmed by defective construction and employees owed unpaid wages. |
| Bid bond | Public owners and some private owners on bid work | That if you win, you'll sign the contract and provide the required performance and payment bonds. |
| Performance bond | Public owners; larger private owners and lenders | That you'll complete the contract according to its terms. |
| Payment bond | Public owners (in place of lien rights); some private owners | That you'll pay your subcontractors, laborers and suppliers. |
| Maintenance or warranty bond | Some public and commercial contracts | That you'll fix defects during the warranty period. |
| Permit and right-of-way bonds | Cities and counties | That work in the street or right-of-way meets local requirements. |
How much bond does each state require?
License bond amounts are set by state statute or board rule, so they vary widely and change over time. Here's what six sources say as of October 12, 2026.
| Jurisdiction | Requirement | Source |
|---|---|---|
| California | $25,000 contractor license bond, written by a surety licensed with the California Department of Insurance. Increased to $25,000 on January 1, 2023 (SB 607). | CSLB Bond Requirements |
| Washington | Continuous contractor surety bond: $30,000 for general contractors, $15,000 for specialty contractors. | Washington L&I |
| Oregon | $25,000 residential bond for a residential general contractor endorsement. | Oregon CCB |
| Federal (Miller Act) | Performance and payment bonds on any federal construction contract over $150,000. For contracts over $35,000 up to $150,000, the contracting officer picks two or more alternative payment protections. | FAR 28.102-1 |
| SBA surety program | SBA backs bonds for small businesses on contracts up to $9 million (non-federal) and $14 million (federal). | SBA |
| Florida (bonded private jobs) | When a private job has a payment bond, an unpaid claimant must sue the contractor or surety within 1 year after its last day of furnishing labor, services or materials. | Fla. Stat. § 713.23 |
For state-by-state licensing details, see contractor license and our state guides.
How much does a surety bond cost?
Contract bond premiums typically range from about 0.5% to 3% of the contract amount, according to Nevada's state risk management guide, depending on the size, type and duration of the project and the contractor. There's typically no direct charge for a bid bond. License bonds are priced differently: you pay a yearly premium on the bond amount, set mainly by your credit and history.
Bond premium = Contract amount × Premium rate
- Contract amount
- the bonded contract price, adjusted later if change orders raise or lower it
- Premium rate
- set by the surety; commonly 0.5%–3% for contract bonds
What moves the rate: your company's financial statements and working capital, personal credit of the owners, experience with similar jobs, the size of the job relative to your track record, and your backlog. See contractor bonding and insurance cost for how bond and insurance costs fit into overhead.
Surety bond vs. insurance: what's the difference?
| Surety bond | Insurance (e.g. general liability) | |
|---|---|---|
| Who it protects | The obligee: owner, agency, consumers, workers | You, the policyholder, against covered claims |
| Who ultimately pays a claim | You, by repaying the surety | The insurer, subject to the deductible |
| How it's priced | Prequalification fee based on your finances and experience | Actuarial pricing based on expected losses |
| What it covers | Your promise to perform, pay subs or follow the law | Injuries and property damage to others, defense costs |
Most contractors need both. A license board may require a bond and general liability insurance; a commercial customer will ask for a certificate of insurance and, on bigger jobs, performance and payment bonds.
How do you get bonded as a contractor?
- 1
Find a surety agent.
Work with an agent who places construction bonds with sureties licensed in your state.
- 2
Get your finances in order.
For contract bonds, expect to provide business and personal financial statements, tax returns, a work-in-progress schedule and bank references. Clean books make this much easier.
- 3
Sign the indemnity agreement.
Sureties usually require the company and its owners to agree to repay any losses. Read it carefully.
- 4
Get a bonding line.
The surety sets limits for a single job and for your total bonded backlog. Those limits grow with your track record.
- 5
Keep it current.
License bonds renew yearly. If a bond lapses, many states suspend the license.
Common surety bond mistakes
- Treating the bond like insurance. A paid claim becomes your debt.
- Mismatched business names. California requires the business name and license number on the bond to match CSLB's records exactly.
- Forgetting the premium in the bid. On a $420,000 job, a 1.5% bond is $6,300 of cost.
- Messy books. Sureties underwrite on your financial statements and WIP report. If they can't read them, your bonding line stays small.
- Ignoring payment-bond deadlines. Bond claims have their own notice and suit deadlines, separate from lien deadlines.
Frequently asked questions
What does it mean when a contractor is bonded?
It means a surety company has issued a bond on the contractor's behalf, usually a state license bond and sometimes job-specific performance and payment bonds. If the contractor breaks licensing law or fails to perform or pay, the harmed party can make a claim against the bond up to its amount.
How much does a $25,000 contractor license bond cost?
License bond premiums are usually a percentage of the bond amount, priced mainly on the owner's credit and claim history, so quotes vary from one surety to another. Ask several surety agents for quotes, and check whether the price is annual or covers the license term.
Is a surety bond the same as insurance?
No. Insurance protects you, the policyholder, against covered losses. A surety bond protects the owner, agency or consumers, and if the surety pays a claim, you're expected to repay it. Most contractors need both a license bond and liability insurance.
When are performance and payment bonds required?
On federal construction contracts over $150,000, the Miller Act requires both. Many states have similar rules for state and local public works, often called Little Miller Acts; check your state's public-works statute. Private owners and lenders may also require them on larger jobs.
Can I get bonded with bad credit?
Often yes, at a higher rate or with collateral, especially for small license bonds. Contract bonds are harder, because sureties weigh your financial statements and experience heavily. The SBA's surety bond program helps small contractors who can't get bonded in the standard market.
Who pays for a surety bond?
The contractor pays the premium. On contract bonds, contractors generally build the premium into the bid price, so the owner pays it indirectly. If the contract amount changes, the premium is usually adjusted too.
Related
- What Is a Contractor License?What a contractor license is, when you need one, and how six states set dollar thresholds, bonds and insurance, with links to each licensing board.
- How Much Do Contractor Bonding and Insurance Cost?What contractors pay for bonds, general liability, workers' comp and auto, with sourced benchmarks, the cost drivers and how to price it into your rates.
- What Is General Liability Insurance for Contractors?What general liability insurance covers for contractors, what it excludes, which states require it to hold a license, and what drives the premium.
- What Is a Certificate of Insurance?What a certificate of insurance is, what it does and doesn't prove, how to read one from a sub, and what licensing boards and GCs require on it.
- What Is a Mechanic's Lien?How a mechanic's lien works for contractors, with notice, filing and enforcement deadlines from six state statutes and a worked example.
- What Is a Lien Waiver?What a lien waiver is, conditional vs. unconditional and progress vs. final waivers, and which states require statutory forms, with sources.
- What Is a WIP Report (Work-in-Progress Schedule)?What a construction WIP report is, every column explained, a four-job worked example with over and under billings, how to read it, and mistakes to avoid.
- AI automation for small business, built around how your shop already worksCustom AI automations built and set up for your trades business: the follow-ups, reminders and hand-offs your office does by hand, done for you.
- What Is Workers' Compensation Insurance?When contractors must carry workers' compensation, how employee thresholds differ by state, and how premiums are calculated from payroll and class rates.
- Contractor Deposit Laws: How Much Can You Collect Up Front?How much deposit a contractor can legally collect: California's $1,000 or 10% cap, one-third limits in Maryland and Massachusetts, New York trust rules.
Sources
- Nevada State Risk Management, 10 Things You Should Know About Surety Bonds (checked October 12, 2026)
- CSLB, Bond Requirements ($25,000 contractor bond) (checked October 12, 2026)
- Washington L&I, Register as a contractor (bond amounts) (checked October 12, 2026)
- Oregon CCB, CCB License (bond and insurance) (checked October 12, 2026)
- FAR 28.102-1, General (Miller Act bond requirements) (checked October 12, 2026)
- U.S. Small Business Administration, Surety bonds (checked October 12, 2026)
- Florida Statutes ch. 713 (§ 713.23, payment bond) (checked October 12, 2026)