How a surety bond differs from insurance

A surety bond is a three-party guarantee. The principal (you, the contractor or importer) promises to perform an obligation. The obligee (a project owner, a government agency or a customer) is the party protected. The surety (an insurance company) guarantees to the obligee that the obligation will be met.

The key difference from ordinary insurance is who ultimately pays. If the surety pays a valid claim, it expects the principal to reimburse it under a general indemnity agreement, often signed by the company and its owners personally. A bond is therefore closer to credit than to risk transfer, and sureties underwrite it like lenders: they study financial statements, work in progress, experience and character.

Contract bonds: bid, performance, payment and advance payment

  • Bid bond guarantees that a winning bidder will sign the contract and provide the required performance and payment bonds.
  • Performance bond protects the owner if the contractor fails to complete the work according to the contract.
  • Payment bond ensures that subcontractors and suppliers are paid.
  • Advance payment bond protects a buyer who pays part of the price up front; if the supplier does not deliver, the surety repays the unearned advance.
  • Maintenance (warranty) bond covers defects discovered during a set period after completion.

On US federal construction, the rules are set out in the Federal Acquisition Regulation. FAR 28.102-1 (FAC 2026-01, effective March 13, 2026) requires performance and payment bonds for any construction contract exceeding $150,000, under the federal Bonds statute formerly known as the Miller Act. For contracts greater than $35,000 but not greater than $150,000, the contracting officer selects two or more alternative payment protections, such as a payment bond or an irrevocable letter of credit. Under FAR 28.101-2, a bid guarantee must be at least 20 percent of the bid price but may not exceed $3 million. States and local governments set their own bonding rules for public works, so always read the bid documents for the project in front of you.

The SBA Surety Bond Guarantee program

Small contractors with a short track record often struggle to get bonded. The US Small Business Administration guarantees bid, performance and payment bonds issued by participating surety companies. According to the SBA, eligible small businesses can use the program on contracts of up to $9 million for non-federal work and up to $14 million for federal work. The SBA charges a fee of 0.6% of the contract price for performance and payment bonds, and no fee for bid bonds.

Customs bonds for importers

US Customs and Border Protection (CBP) requires a bond for most formal entries to secure payment of duties, taxes and fees and compliance with import rules. There are two forms:

  • Single transaction bond covers one entry. Under CBP's February 2024 guide How CBP Sets Bond Amounts, the amount is generally not less than the total entered value plus all applicable duties, taxes and fees, with special rules for duty-free and restricted goods.
  • Continuous bond covers all entries for a year and renews automatically. The same guide sets the minimum basic importation bond at $50,000 or 10% of total estimated duties, taxes and fees in the previous 12 months, whichever is greater. Amounts are set in increments of $10,000 up to $100,000 and in increments of $100,000 above that.

Federal bonds, including customs bonds, must be written by sureties approved by the US Treasury. The Treasury's Department Circular 570 lists the companies that write or reinsure federal bonds; the Bureau of the Fiscal Service reports that it was last updated on August 1, 2026. Importers with rising duty bills, for example after tariff changes, should review the bond amount regularly so that CBP does not declare it insufficient.

Export credit insurance is not a bond

Exporters often confuse bonds with credit insurance. A bond guarantees your own performance to someone else. Export credit insurance protects you against your foreign buyer's failure to pay. In the US, the Export-Import Bank (EXIM) offers export credit insurance that protects foreign receivables from both commercial and political losses and covers up to 95 percent of sales invoices. Private credit insurers offer similar policies in the US and internationally. Many exporters use both: a bid or advance payment bond to win the contract and credit insurance to secure payment.

How to get bonded

  1. Prepare financial statements (ideally CPA-reviewed for larger contract bonds), a work-in-progress schedule and a list of completed projects.
  2. Expect the surety to ask for a corporate and often a personal indemnity.
  3. Establish a bonding line before you need it, so bid deadlines do not catch you unprepared.
  4. For customs bonds, collect your import history and estimated duties for the next 12 months.

How Polis Re can help

Polis Re helps contractors, importers and exporters understand which bond or credit policy fits a contract and requests terms from sureties and insurers. Bonds and policies are issued by licensed sureties and insurers and placed through licensed producers in your state. Related reading: builder's risk insurance and cargo insurance. Ready to start? Request a quote or explore construction insurance.