Bid Bond vs. Performance Bond: What Changes When You Win in Texas
A bid bond backs your promise to sign; a performance bond backs the finished job. Amounts, deadlines, cost, and a Texas bid-to-award timeline with a checklist.
Texas Payment Bond
Subs and suppliers get paid — guaranteed by the surety.
Required on Texas public-works contracts over $25,000 — $50,000 when the owner is a city — under Gov Code §2253.021. Protects first- and second-tier subs, suppliers, and laborers. Written on its own for jobs up to $100,000, and with the performance bond above that.
- 100% of contract amount
- Payment-only on $25K–$100K public jobs
- Harris County, TxDOT, Houston ISD, statewide
What it is
The bond that protects everyone below the GC.
A Texas payment bond is a three-party surety guarantee focused downstream: the general contractor (principal) promises to pay every subcontractor, supplier, and laborer on the project; those parties are the beneficiaries; and the surety company backs the promise financially.
If the GC fails to pay a sub — because of dispute, cash-flow collapse, bankruptcy, or disappearance — that sub can file a direct claim against the payment bond. The surety investigates, validates the unpaid work or materials, and pays the claim up to the bond penalty. Afterward, the surety recovers from the GC under the general indemnity agreement.
On public works, the payment bond matters even more than on private jobs: subs cannot file a mechanic's lien against a city, county, state, or federal building. The public property is off-limits. The payment bond is the only legal recourse left — which is exactly why Texas and federal law require it.
Payment-only jobs
When you need a payment bond without a performance bond.
Texas sets two thresholds, not one. Between them, the owner requires the payment bond alone.
| Public owner | Payment bond only | Payment and performance |
|---|---|---|
| School district, county, state agency | In excess of $25,000, up to $100,000 | In excess of $100,000 |
| City e.g. City of Houston | In excess of $50,000, up to $100,000 | In excess of $100,000 |
| TxDOT | $25,000–$100,000 | More than $100,000 |
| Federal | $35,000–$150,000: a payment bond is one of the protections the contracting officer may pick | Over $150,000 |
Texas: Gov't Code §2253.021(a). TxDOT: 2024 Standard Specifications, Item 3, Table 1. Federal: FAR 28.102-1. A $100,000 contract needs only the payment bond; $100,001 needs both.
This band got bigger in 2025. On September 1, 2025, the formal-bidding threshold for school districts, cities, and counties rose from $50,000 to $100,000 (SB 1173). The payment-bond trigger did not move. A $60,000 school job bought from an informal quote or a co-op contract still needs a payment bond. Contractors who assume "no formal bid, no bond" find out at contract signing.
Owners don't skip it, because the statute makes them pay if they do. A governmental entity that fails to obtain a required payment bond takes on the same liability a surety would have had (§2253.027).
A payment-only bond is underwritten and quoted on its own, with no performance bond attached. Once a job goes over $100,000, both bonds are required. See the Texas performance and payment bond page for that case.
What you pay
Priced on its own, or with the performance bond.
Over $100,000, the payment bond travels with the performance bond on the same underwriting, the same GIA, and one combined premium. On a payment-only job, it is quoted on its own.
| Contractor tier | Combined P&P rate | $500K contract cost |
|---|---|---|
| Established contractor 750+ credit, strong financials | 0.5–1.0% | $2,500–$5,000 |
| Standard contractor 680–749, solid WIP | 1.0–1.5% | $5,000–$7,500 |
| Developing contractor 620–679, limited history | 1.5–2.5% | $7,500–$12,500 |
| Credit-challenged Sub-620 or prior loss | 2.5–3.0% | $12,500–$15,000 |
Rates above are combined performance + payment on jobs over $100,000. A payment-only bond on a smaller public job is quoted separately; we confirm your cost when you apply.
How to get bonded
Four steps, with or without a performance bond.
- 01
Prequalification
Financial statement (reviewed or audited for larger contracts), work-in-progress schedule, bank reference, resume of key personnel, signed general indemnity agreement. Surety sets single-job and aggregate capacity.
- 02
Project submission
Submit contract, scope, schedule, and owner details. Over $100,000 the payment bond is quoted with the performance bond as one package; on a payment-only job it is quoted on its own.
- 03
Bond issued
Payment bond (with the performance bond when required) executed on the obligee's required form — AIA A312, SF-25, or the form the public owner approves (the Attorney General approves state-agency forms). Delivered at contract signing.
- 04
Coverage through final payment
Payment bond stays in force until subs and suppliers are paid and the statutory claim window closes. Release typically follows final project payment and lien-release acknowledgments.
Legal requirements
Threshold, penalty, and claim rules.
Statute
Texas Government Code Chapter 2253 — the Little Miller Act. §2253.021(a)(2) requires a payment bond on public-works contracts in excess of $25,000 — or in excess of $50,000 when the owner is a city.
Penalty
100% of the contract amount. Increased with change orders.
Who can claim
First-tier subs and suppliers who contracted directly with the GC. Second-tier subs and suppliers who contracted with first-tier subs. Laborers. Equipment renters. Third-tier and more remote claimants are generally excluded under Texas law.
Notice deadline
Under §2253.041, notice of claim must be sent to the GC and surety by the 15th day of the third month after the month in which labor or materials were furnished. Certified mail. Strict compliance.
Suit deadline
Claimants must file suit within one year after giving the §2253.041 notice. Texas courts enforce the deadline strictly.
Paying your subs
Pay subcontractors within 10 days of receiving payment from the owner (Gov't Code §2251.022). On public contracts under $5 million, retainage is capped at 10%, and you can't hold more from a sub than the owner holds from you (§2252.032).
Forms
AIA A312 (private), SF-25A (federal), Attorney General-approved forms (state agencies), and the owner's own approved form for counties, cities, TxDOT, and school districts (Gov Code §2253.021(e)).
Why Surety Bond Houston
One agent, both bonds, right forms every time.
Obligee form library
We keep the current approved forms for every major Texas public obligee — no form-rejection surprises on closing day.
Capacity that grows with you
We build bonding programs that scale with revenue and WIP, not transactional one-off quotes.
Same-day for established clients
Once your program is set, P&P bonds issue the day your contract is signed.
Related bonds
The bonds that travel with a payment bond.
FAQ
Payment bond questions from Texas contractors.
What is a Texas payment bond?
A payment bond is a surety guarantee that the general contractor will pay every subcontractor, second-tier sub, material supplier, and laborer who works on the project. If the GC fails to pay, those parties can file a direct claim against the bond and recover from the surety, which then recovers from the contractor under the general indemnity agreement.
When is a payment bond required in Texas?
Texas Government Code §2253.021 requires a payment bond on public-works contracts in excess of $25,000 — or in excess of $50,000 when the owner is a city — a lower threshold than the $100,000 performance bond trigger. That applies to the state, counties, school districts, and cities alike. Federal construction over $150,000 requires a payment bond under the Miller Act (40 USC §3131). Private owners may also require them.
Can I get only a payment bond, without a performance bond?
Yes. On Texas public work the two bonds have different triggers. A payment bond is required in excess of $25,000 ($50,000 for a city); a performance bond only in excess of $100,000 (Gov't Code §2253.021). On a job between those figures, the owner requires the payment bond alone, and it is written on its own. TxDOT follows the same pattern: payment bond only from $25,000 to $100,000.
How much does a payment bond cost?
On a job over $100,000, the payment bond is written with the performance bond at one combined rate — typically 0.5%–3% of the contract amount, based on contractor credit, financial capacity, and project risk. On a payment-only job, the payment bond is quoted on its own. We confirm your cost when you apply.
Who can claim on a Texas payment bond, and by when?
Subcontractors, suppliers, and laborers with a direct contract with the prime contractor or with a subcontractor (§2253.021(c)). Mechanic's liens don't attach to public property, so the bond is their recourse. A claimant must send written notice by the 15th day of the third month after the month the labor or material was furnished (§2253.041), and sue within one year of the notice.
Is the payment bond separate from the performance bond?
Legally yes — they are two distinct bonds protecting two different parties. Practically, sureties issue them together on the same underwriting, the same GIA, and typically one combined premium. On a Texas public-works contract over $100,000 the owner requires both. Between $25,000 and $100,000 ($50,000 and $100,000 for a city), the statute requires only the payment bond — so a payment bond on its own is common on smaller public jobs.
Ready when you are
Get your Texas payment bond today.
Payment-only or paired with performance. Harris County and statewide.