My Client Asked for a Performance Bond. Now What?

What is a performance bond, and how is it different from my license bond?

A performance bond is a three party promise that the job gets finished. You are the principal, the party who hired you is the obligee, and a surety company stands behind your contract for a stated amount, usually the full contract price. If you default, the surety arranges for the work to be completed and then looks to you for what it spent. That last sentence is the part most owners miss, and it is the reason a bond gets underwritten more like a line of credit than like an insurance policy.

Your twenty five thousand dollar CSLB license bond is a different instrument. It is one bond covering your whole license, it protects homeowners and employees up to a small fixed amount, and it offers nothing to a general contractor who needs assurance on a six hundred thousand dollar subcontract. The bond your client is asking about is written per project. It usually arrives paired with a payment bond, which protects the subs and suppliers below you, and sometimes with a bid bond, which promises that if you win the award you will sign the contract and produce the other two.

One more distinction saves arguments later. A performance bond follows the contract, not the quality of the work. It answers for failure to perform what you signed, so a bond claim is a default conversation rather than a workmanship conversation. Defective work that damages someone else's property is still a general liability question, and a crew member who gets hurt is still workers comp. The bond sits in a different drawer than your policies.

Do I need a performance bond on this job, or is my client just asking?

On California public works the answer is usually yes, and the numbers are written into the code. A direct contractor on a public works contract over twenty five thousand dollars has to file a payment bond before work starts, and awarding agencies routinely require a performance bond at one hundred percent of the contract price plus a bid bond at around ten percent of the bid. If you are chasing school district, city, or county work in Orange County, bonding is the entry ticket rather than optional paperwork, and the invitation to bid will say so on its face.

On private work no statute requires a bond, which is why the request feels sudden when it lands. What changed this year is why the request arrives earlier. Senate Bill 61 took effect on January 1, 2026 and caps retention on private works at five percent of each progress payment and five percent of the contract price, and the cap flows down through every tier of subcontract. The cap carries a notable exception. If the party hiring you gave written notice at or before bid time that a performance and payment bond would be required, and you then do not furnish it, the five percent protection no longer applies to you.

Read that as a subcontractor and your inbox makes sense. Bond language is showing up in invitations to bid and prequalification packets on private jobs that never carried it before, because that early written notice is what preserves a higher retention. The cap also does not reach residential projects that are not mixed use and are four stories or fewer, so an apartment remodel in Garden Grove and a mixed use mid-rise can sit under different rules. Before you assume you are stuck, get three answers from the hiring party: is the bond required by the contract or merely requested, in what amount and form, and by what date. Those three answers tell you whether this is a surety problem or a negotiation.

What will the surety ask for, and what if I cannot qualify yet?

Sureties underwrite three things, usually called character, capacity, and capital. Character is your credit along with your claims, lien, and license history. Capacity is whether your crew, your equipment, and your completed work match the size and type of job in front of you. Capital is working capital and net worth, the cushion that tells an underwriter you can carry payroll and material while you wait to get paid. For bonds up to a few hundred thousand dollars, many sureties run a quick program built on a short application, a personal credit check, and a signed indemnity agreement.

Above that the file gets real. Expect business financial statements or tax returns covering two or three years, a personal financial statement from each owner, a work in progress schedule showing what you have under contract and how complete each job is, a bank line reference, and on larger programs a statement prepared by a CPA. Everyone with ownership signs a general indemnity agreement, and a spouse is often asked to sign as well, because the surety is relying on your promise to pay it back. Cleaning up the work in progress schedule is the highest leverage hour most small contractors can spend, since an underwriter reading a messy one tends to assume the worst.

If the answer this week is no, there are real paths forward. Start smaller and build a record, because a surety that has watched you finish three bonded jobs will raise your limit faster than any letter. The SBA Surety Bond Guarantee Program exists for this exact gap, backing eighty to ninety percent of a surety's loss on individual contracts up to roughly nine million dollars, and participating sureties will often write a small contractor with that backing when they would decline without it. Collateral, a funds control arrangement, or a joint venture with a bonded partner can also get one specific job done. And sometimes the useful move is to tell the general contractor plainly that you are not bondable at that number yet and ask what else would satisfy them.

What does a performance bond cost, and does it replace my insurance?

Budget roughly one to three percent of the contract price as a one time premium for that project, with newer and smaller accounts at the higher end and established contractors with strong financials coming in under one percent. Many sureties tier the rate, charging more on the first hundred thousand dollars of contract value and less above it. Treat the premium as a job cost that belongs in the bid rather than in your overhead, and on public work it is often a separate line item you can show the owner.

A bond is not insurance, and pricing it in your head like insurance leads to the wrong conclusion. Insurance spreads an expected loss across a pool of policyholders, and the carrier does not come back to you for what it paid. A surety prices for credit rather than for expected loss, and it keeps a contractual right to recover from you whatever it pays out. That is also why a bond claim shows up as pressure on your bonding capacity and your balance sheet instead of as a premium increase at renewal.

So the bond sits beside your coverage rather than replacing any of it. The general contractor asking for a bond will almost certainly also want a one or two million dollar general liability limit, workers comp, commercial auto, additional insured status, primary and non-contributory wording, and a waiver of subrogation. Those are endorsements from your insurance carrier. The bond is a separate file with a separate underwriter, and the two reviews can run at the same time if you start them together instead of one after the other.

Get a free contractor bond and insurance review, in English or Vietnamese

Two documents tell us most of what we need. The insurance and bond section of the contract or invitation to bid, and your current general liability declarations page. Side by side, those show what is actually being required of you, what your policy supports today, and what a surety will want to see before it issues anything.

As an independent brokerage in Fountain Valley, we place contractor general liability, workers comp, commercial auto, tools and equipment coverage, and CSLB license bonds with many carriers, and we work with surety markets on bid, performance, and payment bonds for your projects. We can mark up the insurance and bond language before you sign, start the surety file and the policy endorsements on the same day, and tell you plainly whether the bond amount in front of you is realistic for your current numbers.

We work with licensed contractors in every trade across Westminster, Garden Grove, Fountain Valley, Santa Ana, Huntington Beach, Anaheim, and all of Orange County. Send your bid documents, and ask for a free quote, in English or Vietnamese.

Frequently asked questions

Is a performance bond the same as my CSLB contractor license bond?

No. The license bond is one twenty five thousand dollar bond tied to your license that protects homeowners and employees up to that fixed amount, and the CSLB requires it to keep the license active. A performance bond is written for one specific project, usually at one hundred percent of the contract price, and it answers to the party who hired you if you fail to perform the contract. Sending a license bond certificate when a general contractor asked for a performance bond is a common mix-up, and it costs bidders jobs every month.

How much does a performance bond cost in California?

Plan on roughly one to three percent of the contract price as a one time premium for that job. Rate depends on the surety's view of your credit, working capital, and track record, so a first bond on a new company usually sits at the top of that range while an established contractor with audited financials can come in under one percent. Many sureties charge a higher rate on the first hundred thousand dollars of contract value and less above it, so the effective percentage drops as the job gets bigger. Put it in the bid as a job cost.

Can I get a performance bond with weak credit or a young company?

Often yes, just at a smaller size and a higher rate to start. Sureties run quick programs for bonds up to a few hundred thousand dollars that rely mainly on personal credit and a signed indemnity agreement. The SBA Surety Bond Guarantee Program was built for this situation and backs eighty to ninety percent of a surety's loss on individual contracts up to roughly nine million dollars, which moves plenty of files from a decline to an approval. Collateral, funds control, or a joint venture with a bonded partner are other ways to get one job done while you build a record.

Does a performance bond cover defective work?

Not the way a policy does. A performance bond answers for failure to perform the contract, so if you finish the job the bond generally has nothing to respond to even when there is a dispute about quality. Damage your work causes to other property is a general liability question, correcting your own defective workmanship is usually a cost you carry or handle through the warranty terms in the contract, and an injured worker is workers comp. Keep all three in place rather than treating the bond as coverage.

Who pays for the bond, me or the party who hired me?

You buy it and you pay the surety, so it has to be inside your number. On public works the bond premium is frequently broken out as its own line item, and some private owners will accept it as a listed cost as well, which is worth asking about before you sharpen the bid. What you should not do is absorb a bond premium on a thin margin job because the request arrived late. Price it, or ask whether something else will satisfy the requirement.

Can you help me get bonded and insured in Vietnamese?

Yes. We are a bilingual independent brokerage in Fountain Valley, CA Insurance License #6017418. Send the insurance and bond section of your contract or invitation to bid along with your current declarations page, and we will tell you what is being required, what your policy already supports, what the surety will ask you for, and what the realistic bond size is for your numbers right now, in English or Vietnamese.