Public Works Bond Requirements Under the Miller Act and in California, Texas, Arizona and Nevada

The Miller Act, 40 U.S.C. §3131, requires performance and payment bonds before award of a federal construction contract of more than $100,000 as written in the statute. The Federal Acquisition Regulation applies the requirement to construction contracts exceeding $150,000, and for contracts greater than $35,000 but not greater than $150,000 the contracting officer selects two or more alternative payment protections. Contractors should read the threshold in the solicitation, which reflects the FAR in force when it is issued.

The performance bond is in an amount the contracting officer considers adequate; FAR 28.102-2 sets it at 100 percent of the original contract price plus 100 percent of any increase unless the officer determines a lesser amount is adequate. The payment bond equals the total amount payable unless the officer finds that amount impractical in writing, and it may not be less than the performance bond. A bid guarantee of at least 20 percent of the bid, capped at $3 million, is required whenever a performance bond is.

Federal work also restricts the surety. Under FAR 28.202, corporate sureties on contracts performed in the United States must appear on the Treasury Department's Listing of Approved Sureties (Circular 570), and a bond's penal amount should not exceed the surety's listed underwriting limit unless the excess is coinsured or reinsured within each participant's limit. Large federal bonds therefore sometimes carry co-sureties.

California's statewide rule is the payment bond. Under Civil Code §9550, a direct contractor awarded a public works contract involving more than $25,000 must give a payment bond before work begins, and the agency must say so in its call for bids. Section 9554 sets the bond at not less than 100 percent of the total amount payable, requires a bond rather than a deposit in lieu of a bond and requires an admitted surety insurer. State entities follow a parallel rule in Public Contract Code §7103, with the same $25,000 threshold and 100 percent amount.

Performance bonds and bid security are set by the code that governs each type of agency. County construction contracts under Public Contract Code §20129 require bidder's security and a faithful performance bond approved by the board, general law cities require bidder's security of at least 10 percent and special districts, school districts and charter cities follow their own codes and charters. Code of Civil Procedure §995.311 adds that any bond required on a public works contract must be executed by an admitted surety insurer, and the approving agency must verify that status.

Texas Government Code §2253.021 requires a governmental entity to obtain bonds from the prime contractor before work begins: a performance bond if the contract exceeds $100,000, and a payment bond if it exceeds $25,000, or $50,000 when the entity is a municipality or a qualifying joint board. Both bonds are in the amount of the contract. The performance bond protects only the governmental entity, and the payment bond protects beneficiaries with a direct contract with the prime contractor or a subcontractor.

The chapter also regulates the bond itself. Bonds must be executed by a corporate surety under the Texas Insurance Code, a bond on a state contract must be payable to the state with a form approved by the attorney general and a bond for any other entity must be payable to and approved by that entity. The bond must display where claim notices go. An entity may not require a contractor to use a specific surety, agent or broker. A reverse auction may not be used for services on a bonded public work contract.

Two provisions shift risk to the owner. If an entity fails to obtain a required payment bond, §2253.027 makes it liable as a surety would have been. And when an insurer settles a covered loss by arranging replacement work rather than paying cash, §2253.022 requires the entity to ensure performance and payment bonds are furnished for that work. Counties may also require a 5 percent bid bond on public works under Local Government Code §262.032.

Arizona's statute has no dollar threshold of its own. Except where another statute exempts the work, A.R.S. §34-222 requires the contractor to furnish a performance bond and a payment bond, each equal to the full contract amount, before any contract is executed for public buildings, public works or improvements of counties, cities, towns and a long list of districts. The bonds become binding on award, must include a prevailing-party attorney fee provision and are filed with the contracting body.

The surety rules are strict. Bonds must be executed by a surety company holding a certificate of authority from the Arizona Department of Insurance and Financial Institutions rather than by individual sureties. An invitation for bids may not require a particular surety, agent or broker. If the prime contract requires subcontractors or suppliers to furnish bonds, the same surety qualification applies to them.

Bid security and retention sit beside the bonds. A.R.S. §34-201 requires a certified check, cashier's check or surety bond for 10 percent of the bid. Under §34-221, the agent retains 10 percent of each progress estimate, with half of the retained amount released on the contractor's request at 50 percent completion and no more than 5 percent withheld afterward if progress is satisfactory, and the contractor may substitute qualifying securities for cash retention.

Under NRS 339.025, a contractor awarded a Nevada public works contract over $100,000 by the State, a county, city, town, school district or other public agency must furnish a performance bond and a payment bond, each in an amount the agency fixes but not less than 50 percent of the contract amount, from a surety authorized to do business in Nevada. The section does not stop an agency from requiring bonds on smaller work, and NRS 339.065 makes it a misdemeanor for an agency to require a particular surety, agent or broker.

Highway work follows a different chapter. NDOT contracts are excluded from chapter 339 and run under NRS chapter 408, which calls for at least 5 percent bid security and full-amount bonds, with the performance bond kept in force for one year after completion. A sub-supplier with no contract with the prime must serve a written notice within 30 days after first furnishing labor or material to keep its payment bond claim under NRS 339.035.

Every bonded public job uses the contractor's surety capacity from bid to release, and the release can lag acceptance by months while the agency processes final payment, retention and any warranty period. Contractors moving from private work into public bidding, or from one state to another, should map their bid calendar against their single and aggregate limits before the first bid bond request.

Subcontractor bonds matter on the same timeline. A prime contractor that bonds 100 percent of the contract to the agency carries the payment risk for every tier below it, so many primes require bonds from site work, utility and structural subcontractors on large packages. On Arizona work, those subcontractor bonds must meet the same certificate-of-authority rule as the prime's bonds.