Bonding is one of the first things I check in any public bid package, because it decides whether a company can bid at all. Here is how the three bonds work and where the thresholds come from.
What do the three bonds do?
| Bond | Protects | When it is due | Typical amount |
|---|---|---|---|
| Bid bond (bid guarantee) | The owner, if the low bidder will not sign the contract | With the bid | A percentage of the bid, set in the solicitation |
| Performance bond | The owner, if the contractor does not finish the work | Before work starts | Usually 100 percent of the contract |
| Payment bond | Subcontractors and suppliers, if they are not paid | Before work starts | Usually 100 percent of the contract |
Public property cannot be liened, so on public work the payment bond takes the place of the mechanic's lien that protects subs and suppliers on private jobs.
What does the federal Miller Act require?
The federal rules sit in 40 U.S.C. chapter 31, subchapter III (formerly known as the Miller Act), and in FAR Part 28:
- Over $150,000: performance and payment bonds are required on any federal construction contract (FAR 28.102-1(a)).
- Over $35,000 up to $150,000: the contracting officer picks two or more payment protections, such as a payment bond or an irrevocable letter of credit (FAR 28.102-1(b)).
- Bid guarantee: when performance and payment bonds are required, the bid guarantee must be at least 20 percent of the bid price, and not more than $3 million (FAR 28.101-2).
The $150,000 threshold has stayed the same since 2010. Congress removed the Miller Act from the periodic inflation adjustments that move other FAR thresholds.
What is a Little Miller Act?
Every state has its own bond statute for state and local public work, usually called a Little Miller Act. Thresholds, claim deadlines and notice rules differ by state, so check the statute for the state where the project is.
In Texas, Government Code Section 2253.021 requires the prime contractor on a public work contract to provide, before work begins:
- a performance bond if the contract is over $100,000, and
- a payment bond if the contract is over $25,000, or over $50,000 when the owner is a municipality or a joint airport board.
Both bonds are in the amount of the contract and must come from a corporate surety authorized in Texas.
How do bonds affect your Go/No-Go decision?
Bonding capacity limits how much public work you can carry at once. Before you spend estimating hours, check:
- The bond requirement in the bid package, including the bid bond percentage and any surety rating the owner demands.
- Your single-job and aggregate limits with your surety, against the work you already carry.
- Payment bond claim rules for your subs, because notice deadlines are strict and differ by state.
- Bond forms. Some owners require their own forms; others accept the surety's standard forms.
A short Go/No-Go checklist with bonding as a hard stop saves more hours than any other line on it.
How does Clara help?
Clara, BAU AI's agent for bids and RFPs, reads every page of the bid package and flags the bond requirements, the bid guarantee amount, the bond forms and the deadlines, each cited to its page. She can also fill in the bid forms from your company profile for your team to review and sign. Your team and your surety make the bonding decision.
If you want to see Clara pull the bonding terms out of a package you are bidding now, join our US founding cohort.
Tushar Adsul, Founder and CEO, BAU AI
Frequently asked questions
Does every public project need a performance bond? No. Federal contracts need one above $150,000, and each state sets its own threshold. In Texas the threshold is $100,000.
Is a bid bond the same as a bid guarantee? A bid bond is the most common form of bid guarantee. Owners may also accept a certified check or other security named in the solicitation.
Who can claim on a payment bond? Subcontractors and suppliers who were not paid, within the notice and claim deadlines in the federal statute or the state Little Miller Act.
Sources
- FAR 28.102-1, Performance and payment bonds, acquisition.gov.
- FAR 28.101-2, Solicitation provision or contract clause (bid guarantee amount), acquisition.gov.
- Texas Government Code Section 2253.021, Performance and payment bonds required.
- Federal Register, FAR Case 2024-001 (August 2025): the inflation adjustment does not apply to performance and payment bonds.