Bonding confuses a lot of new contractors because the requirements vary dramatically by contract type. Service companies can often go years without ever thinking about a surety bond. Construction contractors need to understand bonding before they bid on anything over the micro-purchase threshold. Here is the plain-language breakdown.
The Miller Act: The Core Rule
The Miller Act (40 U.S.C. §§ 3131–3134) is the federal law that governs bonding requirements on government construction projects. The rule is simple:
- Construction contracts over $150,000 require both a bid bond and a performance/payment bond.
- Construction contracts between $35,000 and $150,000 require a payment bond (but not necessarily a bid bond or performance bond — the contracting officer has discretion).
- Construction contracts under $35,000 generally have no bonding requirement.
These thresholds have not changed for many years and apply to all federal construction contracts.
Bid Bonds
A bid bond guarantees that if you win the contract, you will actually sign it and provide the required performance bond. If you win and walk away, the surety pays the government the difference between your bid and the next-highest acceptable bid.
Bid bonds are typically for 20% of the bid amount. They are relatively cheap because the surety is taking on limited risk — you have not done any work yet.
Performance Bonds
A performance bond guarantees that you will complete the contract according to its terms. If you default, the surety either steps in to complete the work or pays the government the cost to hire someone else.
Performance bonds are for 100% of the contract value. They are more expensive and harder to get for small businesses with limited history. Your surety underwriter will look at your financials, work-in-progress, and credit history.
Payment Bonds
A payment bond (also called a labor and materials bond) guarantees payment to your subcontractors and suppliers. This protects subs and suppliers because they cannot file a mechanic's lien on federal property — the payment bond is their only recourse if the prime does not pay.
Payment bonds are also for 100% of the contract value.
Do Service Contractors Need Bonds?
Generally, no. FAR does not require bonding on service contracts as a matter of law. Some contracting officers include bonding requirements in individual solicitations, but this is uncommon outside of construction and high-value, high-risk contracts.
IT contracts, professional services, staffing, consulting — you will almost never see bonding requirements on these.
How to Get Bonded
You need a licensed surety agent to issue government contract bonds. The SBA has a Surety Bond Guarantee (SBG) program that helps small businesses that cannot get bonds commercially. The SBA guarantees up to 90% of the bond, which makes surety companies willing to bond small contractors they might otherwise decline.
To get bonded, you will generally need:
- Business financial statements (2–3 years)
- Personal financial statements for owners
- Bank reference letter
- Work-in-progress schedule (what jobs are currently active)
- Resume showing relevant project experience
Building a bonding relationship before you need it is smart. Talk to a surety agent early in your government contracting career, even if you are not yet bidding on bonded work.