Who Pays for a Performance Bond?
When you’re diving into a construction contract or taking on a new project, there are a lot of moving parts—permits, deadlines, materials, and yes, bonds. One of the most common questions we hear from both new and experienced contractors is: Who pays for a performance bond?
If you’re not totally sure how it works or what a performance bond even is, don’t worry—you’re not alone. At Bonding Solutions, we talk to clients every day who say things like “I had no idea where to start,” or “This was all new to me.” That’s exactly why we’re breaking it down here in plain English, so you can get the answers you need without the confusion.
What Is a Performance Bond?
A performance bond is a type of surety bond that guarantees a contractor will fulfill their obligations under a construction contract. If the contractor fails to complete the work as agreed, the bond provides financial protection to the project owner—typically a government agency, developer, or private owner—by ensuring the job will still get finished or the owner will be compensated.
There are three parties involved in every performance bond:
- The contractor (also called the principal): the one doing the work
- The project owner (the obligee): the one requiring the bond
- The surety company: the one that issues the bond and guarantees the contractor’s performance
It’s also worth noting that a performance bond is different from a payment bond. While the performance bond protects the project owner if the contractor doesn’t finish the job, a payment bond protects suppliers and subcontractors to make sure they get paid.
Who Actually Pays for the Performance Bond?
In most cases, the contractor is responsible for securing and paying the performance bond premium—a small percentage of the total contract price—upfront to the surety company. This bond guarantees the contractor will fulfill their obligations under the construction contract.
However, it’s standard industry practice for contractors to build the cost of the bond into their bid. That means the project owner typically ends up covering the cost indirectly as part of the total contract value. The bond isn’t a separate line item the owner pays for—it’s simply factored into the overall project price.
That said, there are exceptions. In competitive bidding situations, some contractors may choose to absorb the bond premium themselves in order to offer a more attractive bid. While less common, this is sometimes done as a strategic move—especially when margins allow or the project is particularly desirable.
At the end of the day, the contractor is responsible for arranging and paying for the performance bond, but whether they pass that cost on to the owner depends on how they price their work.
At Bonding Solutions, we work with contractors in all kinds of situations—from first-time bonds to high-volume commercial builders—and help them find a solution that fits their project and budget. Whether you’re including the surety bond in your bid or absorbing the cost, we’ll make the process fast, clear, and cost-effective.
Why Contractors Cover the Initial Cost and Securing of Performance Bonds
Paying for the performance bond is part of the contractor’s obligation when entering into a construction contract. It’s more than just a box to check—it’s a sign of trust and professionalism. By securing the bond, the contractor is showing the project owner that they’re serious about finishing the work and have the financial backing to do it right.
Here’s why it matters:
- The bond gives the project owner financial protection if the contractor doesn’t follow through.
- It reassures all parties that the contractor can deliver on time and on budget.
- It helps contractors win bids by making their proposals stronger and more credible.
Think of the bond as a built-in safety net. The surety company is basically saying, “We trust this contractor to get the job done. And if they don’t, we’ll make it right.” That kind of assurance is why many contracts—especially public or large-scale jobs—require it in the first place.
How the Bond Premium Works
The bond premium is the cost the contractor pays to the surety company in exchange for issuing the performance bond. It’s typically a small percentage of the contract price—usually between 1% and 3%, depending on a few key factors:
- Size of the project
- Type of work being performed
- Contractor’s credit history and financials
- Experience and track record
If you’re not sure what your premium might be, we’ve made it easy—just use our Performance Bond Cost Calculator to get a quick estimate. No guesswork, no complicated forms.
While some bonding companies overcomplicate this step, we make it simple. At Bonding Solutions, we take the time to explain your options and work to find the most competitive rate—sometimes even when other agencies have said no.
If you’re worried about qualifying for a performance bond, don’t stress. We’ve helped contractors in tight situations or with bad credit get approved fast and affordably. That’s what makes us different: we meet you where you’re at and make it happen.
Does the Project Owner Ever Pay?
Technically, yes—but not directly.
While the contractor is the one who secures and pays for the performance bond upfront, that cost is usually factored into the total contract price. So in a roundabout way, the project owner does end up covering the cost—but only as part of the broader budget for the job.
Think of it like this: the bond premium is a line item built into the contractor’s bid. It’s not a separate charge to the project owner, and they don’t handle the paperwork or deal with the surety company. But because it’s rolled into the contract, they’re ultimately funding the job—including the assurance that comes with it.
This setup ensures the financial protection benefits both sides. The project owner knows the work will be done or backed by the bond, and the contractor gets to present a strong, credible proposal.
Work with a Bonding Company That Makes It Easy
At Bonding Solutions, we know the bonding process can feel overwhelming—especially if it’s your first time or you’re on a tight timeline. That’s why we’ve built our entire approach around speed, clarity, and real human support.
Our clients often tell us things like:
- “I had no idea where to start—but you made it simple.”
- “Other companies made me wait days. Bonding Solutions had my bond in hours.”
- “I was turned down somewhere else, and you still found a way to get it done.”
Whether you’re securing your first performance bond or managing bonding across multiple projects, we’re here to walk you through every step. Our surety underwriters are responsive, experienced, and genuinely cares about helping you succeed.
Understanding Performance Bonds Starts Here
So, who pays for a performance bond? In short: the contractor does. It’s a standard part of taking on a construction job and helps protect the project owner from risk. The cost is usually small compared to the full contract price, and it’s well worth the peace of mind it provides to everyone involved.
At Bonding Solutions, we’re here to make the process fast, affordable, and easy to understand. Whether you’re new to bonding or just tired of being passed around by other companies, we’re ready to help.
Need a performance bond? Get a quote today—we’ll walk you through it, no stress required.