Surety Bonds, Pricing and Insurance for Government Contracts

Government Contracting Guide · Bonds and Pricing

Win the bid and keep the profit.

Bonds, SBA’s bond guarantee, prevailing wage, insurance and building a price.

$150,000federal construction bond threshold

$9MSBA bond guarantee limit (most contracts)

$14Mlimit on certain federal contracts

Surety bonds for government contracts, along with prevailing wage rules and insurance requirements, often decide whether a small business can bid on public work at all, and whether the contract makes money once it is won.

What a surety bond is

A surety bond is a three-party promise. The surety company guarantees to the government (the obligee) that the contractor (the principal) will do what it promised. A bid bond promises you will sign the contract and provide the other bonds if you win. A performance bond promises you will finish the work as specified. A payment bond promises you will pay your workers, subcontractors and suppliers. If the contractor fails, the surety steps in and then seeks repayment from the contractor, so a bond is closer to credit than to insurance.

When bonds are required

Under the Miller Act, as implemented in FAR 28.102-1, federal construction contracts over $150,000 generally require both a performance bond and a payment bond, and smaller construction contracts may require other payment protections. Most states have “Little Miller Acts” that require similar bonds on state and local public works, with their own dollar limits. Some service contracts and supply contracts ask for bonds too, so check every solicitation.

SBA’s Surety Bond Guarantee program

New and growing small contractors often struggle to get bonded because they lack the track record or financial depth sureties want. SBA’s Surety Bond Guarantee program guarantees part of the surety’s loss, so participating sureties can say yes more often. Since March 2024 it covers bid, performance and payment bonds on contracts up to $9 million, and up to $14 million on federal contracts when a contracting officer certifies the guarantee is needed. SBA reported a record number of bond guarantees in fiscal 2025. Ask a surety agent who works with the SBA program.

Getting bond-ready

Sureties look at the three Cs: character, capacity and capital. Expect to provide business and personal financial statements, tax returns, a work-in-progress schedule, bank references, your experience on similar jobs, and often a personal indemnity agreement. Clean, accountant-prepared financials make a big difference. Start the relationship before you need a bond for a specific bid, and grow your bonding line one successful job at a time.

Prevailing wage

Many public contracts require prevailing wages, set pay and benefit rates for each trade in the area. The Davis-Bacon Act covers federal and federally funded construction contracts over $2,000, and the Service Contract Act covers federal service contracts over $2,500; neither threshold is adjusted for inflation. Many states have their own prevailing wage laws for public works. The rates must be in your price from the start, and most programs require certified payroll reports every week.

Building a price that wins and pays

Start with direct costs for this job: labor at the required wage rates, materials, equipment, travel and subcontractors. Add overhead, the share of rent, insurance, software, vehicles and office staff the job must carry, and the cost of bonds and any special insurance. Then add a fair profit. Compare the total with past award prices for similar work. If you cannot win without pricing below your costs, pass on the bid.

Insurance and compliance

Most public contracts require general liability, auto and workers’ compensation insurance, and professional liability for design and consulting work, often with the agency named as additional insured. Send certificates and endorsements before work starts. Keep certified payroll, timesheets, invoices and change orders organized by job; federal contractors generally keep records for three years after final payment.

Payment bond rights for subcontractors and suppliers

Payment bonds protect the people below the prime. On federal construction, a subcontractor or supplier that is not paid can make a claim on the prime’s Miller Act payment bond, and state Little Miller Acts give similar rights on state and local public works, because liens are generally not allowed on public property. These rights come with strict notice and filing deadlines measured from the last day you worked or delivered materials, so keep accurate dates and act quickly when a payment is overdue.

Pricing service contracts

Service contracts such as janitorial, security, landscaping and food service are priced mostly on labor. Start from the wage determination in the solicitation, add payroll taxes, workers’ compensation, required health and welfare benefits, vacation and holidays, supervision, supplies and equipment, then overhead and profit. Check the staffing hours the agency expects, and price relief staff for sick days so coverage never slips.

Frequently asked questions

Sources

• Acquisition.gov: FAR Subpart 28.1, Bonds and Other Financial Protections
• U.S. Small Business Administration: Record Surety Bond Guarantees in FY25 (Jan. 13, 2026)
• U.S. Department of Labor: Davis-Bacon and Related Acts
• U.S. Department of Labor: McNamara-O’Hara Service Contract Act
• Acquisition.gov: FAR 4.703, Policy (record retention)