These three bonds work together as a system — but each one serves a distinct purpose. Knowing how they differ, what they protect, and when each is required is foundational knowledge for any contractor pursuing public work.
If you've been doing public or government work in Georgia for any length of time, you've dealt with surety bonds. But a surprising number of experienced contractors can't clearly articulate the difference between a bid bond, a performance bond, and a payment bond — what each one protects, what triggers a claim, and how they interact.
That gap in understanding can cost you. Here's a clear breakdown.
A bid bond is submitted with your proposal. It's a guarantee to the project owner that if you're awarded the contract, you will: honor your bid price, enter into the contract agreement, and provide the required performance and payment bonds.
The bond amount is typically 5 to 10 percent of your bid. If you win and then walk away — or fail to provide the required bonds — the surety compensates the owner for the difference between your bid and the next lowest acceptable bid, up to the bond's penal sum.
Public project owners receive multiple bids. They need assurance that the low bidder will actually perform. Without a bid bond, a contractor could submit a low bid speculatively, win, and then refuse the contract — leaving the owner to restart the procurement process. The bid bond eliminates that risk.
Once you execute the contract and provide the performance and payment bonds, the bid bond is released. It's replaced by the performance bond. The two bonds don't overlap — they're sequential.
The performance bond is the most significant of the three in terms of exposure. It guarantees that you will complete the project according to the contract terms — on time, to spec, and at the agreed price. The bond's penal sum is typically 100% of the original contract value.
If you default, the surety has several options: it can finance you to complete the work, hire a completion contractor, or pay the owner for completion costs up to the penal sum. Which option the surety chooses depends on what's most economical given the circumstances.
Default isn't just abandoning the job. It can include:
The owner must typically declare the contractor in default and give the surety formal notice before the surety's obligations are triggered.
The payment bond protects subcontractors, material suppliers, and laborers who provide work or materials to your project. If you fail to pay them, they can make a claim against your payment bond.
This matters especially on public projects because mechanics liens generally cannot be filed against government-owned property. The payment bond is the substitute — it's what gives your subs and suppliers recourse when you don't pay.
The Miller Act gives you direct rights against the GC's payment bond if you're on a federal project and haven't been paid. Critical: you must provide written notice to the GC within 90 days of your last furnishing of labor or materials, and you must file suit within one year. Georgia's Little Miller Act has its own notice requirements — know them before you need them.
| Bond | Protects | Triggered By | Typical Amount |
|---|---|---|---|
| Bid Bond | Project owner | Contractor refuses award or fails to provide bonds | 5–10% of bid |
| Performance Bond | Project owner | Contractor defaults on contract obligations | 100% of contract |
| Payment Bond | Subs, suppliers, laborers | Contractor fails to pay those who furnished labor/materials | 100% of contract |
Bond premiums are typically calculated as a percentage of the contract amount. Most contractors paying standard commercial rates see premiums in the range of 1 to 3 percent. The exact rate depends on your financial profile, claim history, relationship with the surety, and the type of project.
On a $3 million contract, the difference between a 1% rate and a 2.5% rate is $45,000. That's money that comes directly out of your margin — or your competitiveness when bidding. Your financial profile and your bond agent's relationships with underwriters both influence where in that range you land.
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