Performance Bonds for Texas Contractors
A performance bond guarantees the project owner that you’ll complete the work according to your contract. Lavon Insurance helps Texas contractors get performance bonds for public, commercial and private construction projects, including larger residential remodels.
What Is a Performance Bond?
A performance bond is a surety bond a contractor provides after winning a contract, usually for 100% of the contract price. If the contractor defaults, the project owner can make a claim against the bond so the work gets finished.
Principal
The contractor responsible for performing the work in the bonded contract.
Obligee
The project owner, government entity or general contractor requiring the bond.
Surety
The surety company that issues the bond and responds if the contractor defaults.
What Happens When a Performance Bond Claim Is Made?
If the owner declares the contractor in default, the surety investigates. If the claim is valid, the surety typically has several options under the bond form, up to the bond amount.
The contractor and its indemnitors are generally required to repay the surety for any losses and costs it pays.
- Finance or support the original contractor to finish
- Hire a completion contractor to finish the work
- Tender a new contractor for the owner to sign with
- Pay the owner the cost to complete, up to the bond amount
When Is a Performance Bond Required?
Statutes require performance bonds on public projects above certain contract amounts. Private owners can require them on any project.
| Project Type | Performance Bond Required When | Law |
|---|---|---|
| Texas public works | Contract exceeds $100,000, in the full contract amount | Gov’t Code §2253.021 |
| Federal construction | Contract exceeds $150,000 | Miller Act, FAR 28.102-1 |
| Commercial projects | When the owner, lender or general contractor requires it | Contract terms |
| Residential projects | When the homeowner or lender requests it, often on large remodels and additions | Contract terms |
Performance Bonds Can Win You Private Work Too
Performance bonds aren’t just for government jobs. Developers, general contractors and homeowners planning large renovations or additions may ask for one before signing.
Even when a bond isn’t required, offering one shows you’ve passed surety underwriting and gives customers added assurance the job will be finished.
A performance bond guarantees completion of the contract. It isn’t a guarantee of workmanship quality or a substitute for proper licensing, and coverage depends on the bond form and contract.
- A financial guarantee tied to the contract
- Proof the contractor passed surety underwriting
- An edge in competitive proposals
- Added confidence on large renovation projects
- A more formal framework for the contract
How Much Does a Performance Bond Cost?
Performance bond premiums are usually a percentage of the contract price, commonly around 1% to 3% for qualified contractors, with lower rates on larger contracts. When a payment bond is also required, both are typically written together for one premium.
Your actual rate is set by the surety after reviewing your experience, finances, credit and the project.
- Contract size and bond amount
- Years in business and similar completed projects
- Business and personal financial statements
- Personal and business credit
- Current backlog and work in progress
- Project type, duration and warranty terms
Bid Bonds, Performance Bonds & Payment Bonds
These bonds cover different stages of the same construction contract.
Bid Bond
Guarantees you’ll sign the contract and provide the required bonds if your bid wins.
Learn About Bid Bonds →Performance Bond
Guarantees the owner that the work will be completed according to the contract.
All Construction Bonds →Payment Bond
Guarantees that qualifying subcontractors, laborers and suppliers will be paid.
Learn About Payment Bonds →Who Needs a Performance Bond?
General Contractors
Contractors awarded commercial, municipal, school district, institutional or other bonded projects.
Specialty Contractors
Electrical, mechanical, plumbing, roofing, concrete and excavation subcontractors bonded to the GC.
Residential Contractors
Builders and remodelers whose customers or lenders request performance assurance on larger jobs.
How to Get a Performance Bond
Review the Contract
Identify the obligee, contract amount, required bond amount and bond form.
Apply
Apply online with your contractor, project and business information.
Underwriting
The surety reviews your experience, finances, work in progress and the project.
Receive the Bond
Once approved, deliver the signed bond to the obligee as the contract requires.
Information You’ll Need
Having these documents ready speeds up underwriting. Larger contracts may also require CPA-prepared financial statements.
Need help reading the bond requirements in your contract? Call (972) 853-8884.
- Legal business name and contact information
- Project name, location and obligee
- Contract amount and required bond amount
- Copy of the contract or award documents
- Required bond form
- Scope of work
- Contractor experience and completed projects
- Current work in progress
- Financial information when required
Performance Bond FAQs
What is a performance bond?
A performance bond is a surety bond that guarantees the project owner the contractor will complete the work according to the contract. It’s usually written for 100% of the contract price.
When does Texas require a performance bond?
Under Texas Government Code §2253.021, governmental entities must require a performance bond on public works contracts over $100,000. Federal construction contracts over $150,000 require one under the Miller Act.
How much does a performance bond cost?
Premiums are usually a percentage of the contract price, commonly around 1% to 3% for qualified contractors, with lower rates on larger contracts. Your rate depends on your experience, finances, credit and the project.
What happens if a contractor defaults on a bonded project?
The surety investigates the owner’s claim. If it’s valid, the surety may finance the contractor, hire a completion contractor, tender a new contractor or pay the cost to complete, up to the bond amount. The contractor must then repay the surety.
Is a performance bond the same as insurance?
No. A performance bond protects the project owner, and the contractor must repay the surety for any valid claim. Insurance protects the policyholder.
What is the difference between a performance bond and a payment bond?
A performance bond protects the owner by guaranteeing the work is completed. A payment bond protects subcontractors and suppliers by guaranteeing they are paid. Many projects require both.
Can a homeowner require a contractor to get a performance bond?
Yes. A private owner can make a performance bond a condition of the contract, subject to the contractor qualifying with a surety.
Does a performance bond guarantee workmanship?
Not exactly. It guarantees performance of the contract as written. Whether a workmanship issue is covered depends on the contract terms, the bond form and any warranty period the contract includes.
Can I apply for a performance bond online?
Yes. You can start a performance bond application online through Lavon Insurance. Approval and issuance remain subject to the surety’s underwriting.
Other Bonds & Insurance for Contractors
Lien Release Bonds
Remove a mechanic’s lien from a property while the dispute proceeds against the bond.
Learn About Lien Release Bonds →General Liability
Most bonded contracts also require proof of general liability insurance.
General Liability Insurance →Inland Marine
Coverage for tools, equipment and materials moving between job sites.
Inland Marine Insurance →Start Your Performance Bond Application
Whether it’s a public project, commercial contract or private remodel, we can help you start the performance bond process today.
Bond availability, approval, rates, limits and underwriting requirements vary by surety company, contractor and project. A performance bond is not issued until approved by the surety. Statutory summaries are general information, not legal advice.