A Complete Guide to Construction Surety Bonds
Understand everything about surety bonds in the construction industry.
Whether you're getting licensed for the first time or bidding on a public works project, understanding construction surety bonds is critical. This guide breaks down exactly which bonds you need, how much they cost, and how to get approved.
On this page:
- Which construction bond do I need?
- What is the cost of a construction bond?
- How to get a construction surety bond
- Construction bond vs. liability insurance
- Construction bond FAQs
Which Construction Bond Do I Need?
Most contractors must secure a contractor license bond at the state or local municipality level to operate. If you’re already licensed and bonded, working on government projects requires at least one or more contract bonds in construction.
Contractor License Bond vs. Contract Construction Bond
| Feature | Contractor License Bond | Contract Surety Bond |
| Primary Purpose | Allows you to legally operate as a contractor | Guarantees you will bid, complete, and pay for a project as agreed |
| Required By | State or local licensing authority | Project owner (typically government or public agency) |
| Who Needs It | Contractors applying for or renewing a license | Licensed contractors bidding on or are awarded public works projects |
| When You Need It | Before you can legally work as a contractor | When bidding on and executing a specific project |
| What It Protects | Consumers and the public from fraud or code violations | Project owners (completion) and subcontractors/suppliers (payment) |
| Typical Bond Amount | Set by state/local law (often $5,000–$50,000+) | Based on project size (can range from thousands to millions) |
| Cost (Premium) | Usually $100–$500/year for most contractors | Typically 1–3% of the contract amount |
| Types Included | License and permit bonds only | Bid bond, performance bond, payment bond, maintenance bond |
Types of Construction Bonds
License & Permit Bonds
Who needs it: Contractors seeking a state or city license.
Purpose: Guarantees you will follow local laws and building codes and fulfill contractual obligations with customers.
A license and permit bond is required of contractors seeking licensure with the state or local municipality. The required bond amount and premium vary, and the bond term is typically one year. This bond allows contractors permission to work within their jurisdiction.
Contractors must maintain this bond to maintain their licensure.
Bid Bonds
Who needs it: Contractors submitting proposals for public or government projects.
Purpose: Demonstrates you are serious about completing the work. If you win the bid, you are legally committed to signing the contract.
Bid bonds help project owners filter out contractors who aren’t financially or operationally capable of completing the project.
Performance & Payment Bonds
Who needs it: Contractors who have won a bid.
Purpose: Ensures the project is completed as agreed and subcontractors and suppliers are paid.
Performance bonds protect the project owner, while payment bonds safeguard subcontractors. Together, they provide peace of mind for all parties involved.
Maintenance Bonds
Who needs it: Contractors who have completed a project.
Purpose: Guarantees any defects or faults in the work provided by the contractor is resolved during the bond’s coverage term.
Maintenance bonds, often required post-completion, guarantee contractors fix defects for a set period. Confirm with your surety team whether your project or contract requires this bond.
What is the Cost of a Construction Bond?
Most contractors pay 1-3% of the bond amount per year. This is the cost of coverage and not the total bond amount. The construction bond coverage you need is set by the state or project owner.
Factors affecting cost:
- Project size
- Personal credit score (most important for smaller bonds)
- Business financials (for larger performance bonds)
- Contractor experience and track record
Construction Bond Cost Examples
| Bond | Bond Amount | Annual Premium (1-3%) |
| Bid Bond | N/A | N/A ($0 until awarded) |
| Performance Bond (Credit-Only Program) | $50,000 | 3% ($1,500) |
| Performance Bond (Standard Program) | $50,000 | 2-2.5% ($1,000-$1,250)* |
| Subdivision/Site Improvement Bond | Varies | 2-3% |
| Maintenance Bond | Varies | 1-3% |
*Requires two years of financials
Learn more about the cost of surety bonds.
How to Get a Construction Surety Bond
Here’s a step-by-step guide on getting a construction surety bond for your project.
- Apply for a bond line of credit: This will help expedite the process once awarded a bid.
- Identify the requirement: The project owner, city, or state board will have the specific bond form you need to submit.
- Apply online: Our form requests your business information, license details, and financials.
- Undergo underwriting: Large bonds undergo a financial review whereas smaller bonds often qualify for instant approval.
- Issue & file: The bond form will be emailed to you, which you can then sign and file with the obligee.
NNA Surety issues bid bonds at no cost until you’re awarded a project. At which point, we work with top-rated carriers to secure the best rates for your P&P bonds.
The time it takes to get bonded depends on your qualification level and bond type. Here are general turnaround times you can expect:
- Pre-approved contractors: 1 hour
- Credit-only program applicants (not pre-approved): Same day
- Standard program applicants (with underwriting): 1-3 days
Difference Between a Surety Bond vs. Contractor Insurance
A construction surety bond and liability insurance are often required for projects. During the initial licensing application, contractors typically need to secure both a contractor license bond and liability insurance.
The contractor license bond is a three-party agreement between you (the contractor), the project owner (obligee), and the surety (bonding company).
Once you’re licensed, you’ll apply for construction bonds depending on where you are with the project. If you’re just starting out, you’ll need a bid bond. When you secure the bid, you’ll then need a performance or payment bond.
Construction Bond FAQs
I already have a bond, why do I need another one for a project?
A contractor license bond only allows you to legally operate—it doesn’t cover specific jobs. When you take on a public or government project, you’ll need contract bonds (e.g., bid, performance, and payment bonds) to guarantee the work will be completed and everyone gets paid.
Is my license bond enough for bidding?
No. A license bond is for compliance with state or local requirements. To bid on most public projects, you’ll need a bid bond. If you win the job, you’ll also need performance and payment bonds along with any additional bonds required by the obligee.
Do I upgrade my bond amount for bigger jobs?
You may upgrade the bond amount for your construction bond. That amount is set by your state or local authority and typically stays the same. For larger projects, you’ll need contract bonds based on the size of the job, which means higher bond amounts and underwriting based on your financials and experience.
What is the difference between a surety bond and a contractor license bond?
A surety bond guarantees contractual obligations are met and protects consumers from financial loss. Surety bonds cover a range of obligations—from license and permit bonds to contract to court bonds. A contractor license bond is a type of surety bond contractors need to become licensed to perform their services in a given state or local municipality.
Can I get a construction bond with bad credit?
Yes, you may get a construction bond with bad credit. To secure the best construction bond rates, NNA Surety considers 700+ optimal. For credit scores between 600-699, expect to pay the standard rate. Scores below 600 may need to pay the higher end of the 1-3% premium. Check out our resource on getting a surety bond with bad credit.
What happens if a claim is filed against my construction surety bond?
Claims are investigated by the surety. If valid, the surety may pay the obligee and seek reimbursement from the contractor. Learn more in Surety Bond Claims: How to Avoid & What to Do.
Get Bonded for Construction Projects
NNA Surety has a team of experts at finding you the right surety bond for your needs. Whether you’re just getting licensed or looking for a performance bond after securing a project, our team can help. Complete our form or call 855-968-1209.