How bid, performance, and payment (labour & material) bonds fit a construction contract — US FAR / Miller Act pointers and Canadian tender practice, without inventing premiums or legal advice.
Education only / verify at source / not legal or placement advice. Bond forms, statutes, solicitations, and underwriting standards change. Global Guarantors publishes educational reference beside its wordings library and underwriter directory — not premiums, quotes, brokerage, or legal advice. Confirm the live form, the obligee’s rules, and licensed counsel or intermediaries before you rely on anything here.
Start here: Surety 101 · Commercial surety · Glossary · FAQ · Government & regulatory watch
Contract surety is the bond family tied to a construction (or similar works) contract — usually a bid bond at tender, then performance and payment bonds after award. In Canada, the payment instrument is often labelled a labour and material payment bond.
It is not the same product line as commercial / license-and-permit surety. Those bonds guarantee a statutory, regulatory, or miscellaneous duty (a license condition, a court obligation, a public-official fidelity duty). Contract surety answers a project question: will this contractor enter the contract, perform it, and pay covered labour and material claimants as the bond and law require?
It is also not insurance written for the applicant. A surety bond is a three-party guarantee. The surety stands behind the principal’s duty to the obligee. If the surety pays or completes under the bond, it typically looks to the principal (and indemnitors) for reimbursement — the credit-style relationship mapped in Surety 101.
Private owners choose to require contract bonds; many public owners must. Either way, the solicitation and the issued forms control — not a primer.
| Role | Plain English |
|---|---|
| Obligee | Who the bond protects — often the project owner (and, on payment bonds, certain statutory claimants by design of the form / statute). |
| Principal | The contractor (or subcontractor) whose obligation is guaranteed. |
| Surety | The licensed guarantor that may respond, up to the penal sum, if a covered default is proven under the bond’s conditions. |
Indemnity between the principal (and often other indemnitors) and the surety sits behind the bond. For the full map — including claims in plain English — use Surety 101 and the glossary (obligee, principal, surety, penal sum, indemnity).
A bid bond protects the obligee during procurement. If a selected bidder fails to enter the contract or fails to deliver the required performance and/or payment bonds on time, the obligee looks to the bid bond for that failure.
They appear on public tenders that require bid security for a responsive bid, and on many private invitations where the owner wants a financial stake behind the price. The percentage or fixed amount is set in the solicitation — Global Guarantors does not invent those figures here.
“Forfeiture” or damages language is wording- and solicitation-specific. Some forms speak to the difference between bids; others use a stated penal sum. Read the bid documents and the specimen — not a classroom paraphrase. Canadian standard families include CCDC 220 – Bid Bond (2024). US packages use the agency, AIA, or other form the solicitation names.
A bid bond is the on-ramp. It is not a substitute for post-award performance or payment security.
A performance bond supports the obligee if the bonded contractor defaults on performance. Whether the surety completes, arranges completion, pays up to the penal sum, or follows another option listed in the form is a wording question.
FAR Subpart 28.1 implements the Bonds statute (Miller Act framework) for federal acquisition. As retrieved for this draft (FAC 2026-01, effective 2026-03-13 — re-verify FAC stamp on publish day):
State Little Miller Act statutes often echo the federal pattern for public work, but thresholds and percentages differ by jurisdiction. Read the statute and solicitation you are under.
Pending verification (Advisor): Cornell LII and the U.S. Code text on govinfo still show “more than $100,000” in 40 U.S.C. § 3131(b), while FAR 28.102-1 states bonds for construction exceeding $150,000. This primer treats live FAR as the federal acquisition rule of practice and cites the statute as the Bonds / Miller Act framework. Re-check statute + FAR on publish day; do not invent a reconciliation in GG copy.
Canadian tenders frequently call for performance bonds at about 50% of contract price, and sometimes 100%. That “about half” figure is common tender practice, not a single pan-Canadian statute. One public example: Alberta Infrastructure’s master specification for contract performance security calls for a 50% CCDC 221 performance bond in the situations that section covers — still a specification choice. Separately, some Ontario public-contract rules set bond floors at not less than 50% of the contract price on prescribed forms above a dollar trigger — again jurisdiction-specific, not a Canada-wide percentage. The tender sets the penal sum. Standard forms include CCDC 221 – Performance Bond (2024). Cite Surety Association of Canada public education at source; do not republish association body copy.
On large jobs, owners may stack bonds with other security. See Megaproject data-center performance security.
A payment bond (US) or labour and material payment bond (Canada) is meant to protect certain subcontractors, labourers, and suppliers who furnish labour or materials — especially where lien rights against public property are limited.
Canadian packages commonly pair performance with a labour and material payment bond. The current CCDC family includes CCDC 222 – Labour and Material Payment Bond (2024). Who may claim, how notice works, and how the bond sits beside provincial prompt-payment and holdback regimes are jurisdiction- and form-specific. Deep dive: Canada prompt payment (Ontario & BC).
Private owners in both countries may require payment bonds even when no statute forces them. The contract and the bond still define who is a claimant.
Penal sum, notice windows, dual-obligee riders, warranty extensions, and claim procedures live in the form edition, not in a primer paragraph.
| GG surface | What it is for |
|---|---|
| Wordings library | Living index of public specimen / identifiable form families |
| Bond wordings — public specimens | How to read a specimen without treating GG as the issuer |
| Underwriters directory | Education roster of carriers that publicly describe appetite |
| FAQ | Short answers that point back to statutes and forms |
Co-surety (high level only): On large penal sums, more than one surety may appear on the bond, or a lead may use reinsurance / co-surety so underwriting-limitation rules are respected. For US federal bonds, start with Department Circular 570 and its notes on limitations, co-insurance, and reinsurance — verify the live list; status and limits change. This page does not invent capacity math.
Underwriting remains the three-C conversation in Surety 101 — credit judgment, not a tariff published here.
Public government and educational primers retrieved or confirmed 2026-10-01 (PT). High-level cites only; no full bond text republished.
