Government Work Demands Bonds
Private construction is optional when it comes to bonding. You might never post a bond on a private project. Public works are different. Federal and state law mandates bonds on virtually every government construction contract, and California adds requirements beyond what federal law requires.
If you want to build schools, highways, water treatment plants, transit infrastructure, or any other publicly funded project, you need to understand the bonding framework.
Federal Requirements: The Miller Act
The Miller Act (40 U.S.C. 3131-3134) applies to all federal construction contracts exceeding $150,000. It requires a performance bond equal to 100% of the contract price and a payment bond based on a sliding scale.
The payment bond amounts are 50% for contracts between $150,000 and $1 million, 40% for contracts between $1 million and $5 million, and $2.5 million for contracts over $5 million.
These are minimums. Contracting officers can require higher amounts if the project risk warrants it.
Federal projects include military base construction, VA hospitals, federal courthouses, national parks facilities, post offices, and any project funded primarily by federal agencies.
California Requirements: The Little Miller Act
California Public Contract Code Section 20170 requires bonds on all public works contracts with state or local agencies. The thresholds differ from federal law and apply more broadly.
Performance Bonds
California requires a performance bond equal to 100% of the contract price on every public works contract. There's no minimum threshold like the federal $150,000. Even a $50,000 sidewalk repair contract for a city or county requires a performance bond.
Payment Bonds
Payment bonds are required on all California public works contracts exceeding $25,000. The bond must equal 100% of the contract price.
This is significantly more protective than the federal sliding scale. On a $4 million California school construction project, the payment bond is $4 million. Under the Miller Act, it would be $1.6 million.
Who Can Issue Public Works Bonds
Treasury Listing
Sureties issuing bonds on federal projects must be listed on the U.S. Treasury's Circular 570 as approved companies. This listing confirms the surety meets minimum financial standards.
For California public works, the surety must be admitted in California and authorized to transact surety business by the California Department of Insurance. Most Treasury-listed sureties are admitted in all 50 states, but verification is your responsibility.
AM Best Rating
Most public agencies require the surety to carry a minimum AM Best rating of A- or better. Some large projects specify A or A+ ratings. Check the project specifications before your surety agent issues the bond.
Qualifying for Public Works Bonds
Financial Documentation
Public works bonding programs require more financial documentation than contractor license bonds. At minimum, you'll need CPA-prepared financial statements (reviewed or audited), personal financial statements from all owners with significant equity, bank reference letters confirming your banking relationship and credit line, a work-in-progress schedule showing all current projects and their status, and a completed surety application.
Operational Requirements
Sureties want to see that your team has experience completing government work, you understand prevailing wage requirements and Davis-Bacon compliance, your project management systems can handle government reporting, and you have the equipment and personnel for the scope of work.
Pre-Qualification
Many larger public agencies pre-qualify contractors before allowing them to bid. CalTrans, BART, LAUSD, and most large cities have formal pre-qualification programs that evaluate your financial capacity, bonding capacity, safety record, personnel qualifications, and past performance on similar projects.
Start the pre-qualification process months before you plan to bid. Applications are lengthy, and processing takes time.
The Bid Bond
Before you submit a proposal on a public works project, you'll typically need a bid bond. This guarantees that if you're the low bidder, you'll enter into the contract and provide the required performance and payment bonds.
Bid bonds are usually set at 10% of the bid amount. If you bid $2 million, your bid bond is $200,000. The surety doesn't charge a separate premium for bid bonds if they're providing the performance and payment bonds on the same project.
If you withdraw your bid after opening (without a legitimate mathematical error), the agency can collect on the bid bond to cover the difference between your bid and the next lowest responsible bidder.
Payment Bond Claims and Mechanics
California's payment bond framework protects subcontractors and suppliers who aren't paid for their work on public projects. Since mechanic's liens don't apply to public property, the payment bond is the primary remedy.
Who can file a claim: Direct subcontractors and suppliers to the prime contractor can file without providing preliminary notice. Sub-tier claimants (subs to subs, or suppliers to subs) must provide written notice to the prime contractor within 30 days of last furnishing labor or materials.
Filing timeline: Claims must be filed within 30 days after the notice of completion is recorded, or within 90 days of last furnishing labor or materials if no notice of completion is recorded.
Cost of Public Works Bonds
Bond premiums are calculated as a percentage of the contract price. Rates typically run between 1% and 3% for contractors with strong financials and clean records.
| Contract Amount | Approximate Premium Range | |----------------|--------------------------| | $500,000 | $5,000 - $15,000 | | $1,000,000 | $10,000 - $25,000 | | $5,000,000 | $40,000 - $100,000 | | $10,000,000 | $75,000 - $175,000 |
Rates decrease as a percentage as contract amounts increase. A $500,000 contract might bond at 2.5%, while a $10 million contract might bond at 1.5%.
Include bond costs in your bid. They're a legitimate project cost, and most bid forms have a line item specifically for bond premiums.
Building Your Public Works Bonding Program
Start with smaller municipal contracts to build a track record. Complete them on time and on budget. Use that history to support progressively larger bond requests.
Maintain your financials in bond-ready condition year-round. Annual CPA reviews, clean personal credit, adequate working capital, and timely financial reporting all keep your surety program running smoothly.
Develop relationships with both your surety agent and your surety underwriter. When you need a quick bond turnaround for a competitive bid, these relationships matter.
Common Questions
Can I self-bond on California public works?
California allows self-bonding only in very limited circumstances and for very large, financially strong contractors. Virtually all contractors use third-party sureties.
What happens if my surety goes bankrupt?
If a surety becomes insolvent, its bonds are typically assumed by a guarantor or reinsurer. The project owner may require replacement bonds from a new surety, which the contractor must arrange.
Are joint venture bonds available?
Yes. Joint ventures can obtain bonds based on the combined financial strength and experience of both parties. The surety evaluates both firms and may require indemnity from both.
How quickly can I get a bond?
With an established program, bonds can be issued within 24 to 48 hours. New programs take two to four weeks to set up. Start your bonding relationship well before you plan to bid.