Surety Bonds for Government Contractors: How to Get Bonded and Win Construction Work

On a private construction project, an unpaid subcontractor can file a mechanic's lien against the property. That lien clouds the title, blocks refinancing, and creates real financial pressure on the owner to resolve the dispute. It works because property rights give subs leverage.

On federal projects, that mechanism doesn't exist. You cannot lien a government building. Congress recognized this asymmetry in 1935 and passed the Miller Act to fill the gap — requiring contractors to purchase bonds that substitute for the lien remedy.

The bond system serves two separate constituencies. Performance bonds protect the government: if you default, the surety steps in to complete the project or compensates the agency for losses. Payment bonds protect subcontractors and material suppliers: if you don't pay them, they can make a claim directly against the bond. Both protections run on the same contract.

Beyond the legal requirement, bonding capacity is a practical ceiling on the contracts you can pursue. A surety will pre-qualify you for a maximum single-project bond and a maximum aggregate (total work in progress). Those limits define your addressable market as a federal construction contractor.

Only about 23% of small contracting firmshave obtained surety bonds according to GAO data — which means 77% are locked out of all federal construction work above the micro-purchase threshold. If you get bonded while most of your competition hasn't, you're competing against a far smaller field.

Federal construction uses three distinct bond types, each serving a different protective purpose at a different stage of the contract life cycle.

One important August 2025 update: a FAR change (FAR 28.106-6, effective August 7, 2025) now requires contracting officers to promptly provide subcontractors and suppliers with payment bond information — including the surety's name and address, the bond's face amount, and a copy of the bond — upon oral or written request. If you're a sub evaluating whether to take on a federal job, you can now verify that a payment bond actually exists before you mobilize.

The Miller Act (40 U.S.C. §§ 3131–3134) governs bonding on federal construction projects. The statute itself uses a $100,000 threshold, but FAR 28.102-1 — the operative regulation agencies actually apply — sets the practical threshold at $150,000. That is the number you need to know.

The $150,000 level has been in place since October 1, 2010. The National Association of Surety Bond Producers (NASBP) is actively lobbying Congress to exempt the Miller Act from the inflation-indexing mechanism that governs other FAR thresholds — meaning this number could increase in future regulatory cycles. For now, $150,000 is the line.

Bid bonds kick in even before the contract threshold matters. If a solicitation requires a bid bond (which virtually all Miller Act solicitations do), you submit the SF-24 with your bid. The bid bond amount is typically 20% of your bid price, capped at $3 million. A missing or deficient bid bond results in automatic rejection of your bid — not an opportunity to cure.

The Miller Act also has a limitations period: subcontractors and suppliers have one year from the date of final settlement of the contractto file a claim on the payment bond. That is the outer limit — individual bond forms may specify shorter notice periods. Subs must have furnished labor or materials for at least 90 days and must give you 90 days' written notice before filing a claim if they have no direct contractual relationship with you.

The SBA Surety Bond Guarantee (SBG) Program exists because the commercial surety market frequently turns away small and emerging contractors — not because they are bad businesses, but because surety underwriting is conservative and financial documentation requirements are demanding. The SBA fills that gap.

The mechanics: the SBA doesn't write the bond itself. Instead, it guarantees a percentage of the surety company's loss if you default. That guarantee — up to 90% of the surety's loss — gives participating surety companies the confidence to bond contractors who would otherwise be declined.

Who qualifies: You must be a small business under SBA size standards for your primary NAICS code. For general contractors (NAICS 236), that means average annual revenues under approximately $39.5 million. For most specialty trade contractors (NAICS 238), it ranges from roughly $16.5 million to $19 million depending on the specific code. You do not need to have been formally rejected by a commercial surety — the program is available to any qualifying small business that faces difficulty accessing commercial bonding.

What it covers: Bid bonds, performance bonds, payment bonds, and some timber bonds. The program applies to federal, state, local, and private contracts — not just federal work.

Legislative update:S. 2232, the "Expanding the Surety Bond Program Act of 2025," introduced in July 2025, would raise the general contract limit from $9 million to $20 million. The Congressional Budget Office estimated the net cost at less than $500,000 for 2026–2031. As of this writing, the bill is in the Senate Committee on Small Business and Entrepreneurship.

Surety underwriting has nothing in common with insurance. Insurers expect losses and price for them. Sureties expect zero losses — they only issue bonds when they believe you will perform. When you default, the surety pursues indemnification from you personally and from your company. The underwriting process reflects that expectation.

The industry frames the evaluation around the Three C's:

Credit Score Benchmarks

Bond premiums are calculated as a percentage of the bond amount. Since performance and payment bonds are both set at 100% of the contract value, the premium applies directly to the contract price. You typically pay one premium that covers both bonds together.

Premium rates are not regulated — they vary by surety company, contractor financial profile, project type, and market conditions. The surety market is currently hardening: underwriting standards tightened in 2025–2026 compared to the looser conditions of 2021–2022. New contractors face more scrutiny, not less.

Real Dollar Examples

Sureties often use a tiered premium structure: a higher rate on the first tranche of contract value, declining as the contract gets larger. The table below shows approximate all-in bond costs (covering both performance and payment bonds):

Bond premiums are a real cost of doing business on federal construction projects. Include them in every bid.Contractors who forget this hit are either underpriced or take a margin hit they didn't plan for. At a 1.5% premium on a $2 million contract, that is $30,000 coming out of your gross profit.

The good news: bond premiums are typically a deductible business expense. Consult your accountant, but in most cases they are treated as a cost of performing the contract.

Surety bonds are sold by licensed insurance agents who specialize in this product — not your general commercial insurance broker, though some brokers do handle both. The quality of your surety agent relationship matters more than almost any other single factor in your bonding access.

A good surety agent does not just process your application. They advocate for you with the underwriter, help you present your financials in the strongest possible light, explain what documentation gaps need to be filled, and negotiate terms. A mediocre agent submits your paperwork and waits. Choose carefully.

Once you have an agent, the pre-qualification process typically takes 2–4 weeks for new accounts. You will need to provide: at minimum two to three years of CPA-prepared financial statements, a personal financial statement from each owner, a personal credit authorization, your company's organizational documents, a completed contractor questionnaire (work history, largest projects, key personnel), and bank references.

The output of this process is your bonding capacity: a single-project limit and an aggregate limit. These are not permanent — they are re-evaluated annually and can increase as your financial strength and track record grow.