Performance Bond vs Payment Bond vs Bid Bond: What Each One Covers

By Erik Tishenko, Modern Northwest · Published November 4, 2026

A performance bond guarantees the contractor will finish the job according to the contract. A payment bond guarantees the contractor will pay the subcontractors and suppliers. A bid bond guarantees a bidder who wins will actually sign the contract. All three are issued by a surety company, and on public projects in Oregon and Washington the law decides when they are required. Here is what each one does, the official rules in both states, and how they differ from the license bond every contractor carries.

Oregon thresholds from ORS 279C.380 and 279C.365 ($50,000 for highways, bridges and transportation). License bond from the Oregon CCB. Washington rules below.

Questions about bonds on your project? Modern Northwest is licensed in Oregon (CCB #198582, Commercial General Contractor Level 2) and registered in Washington (L&I MODERNI888R7). Call (360) 326-2747 or see our commercial construction services.

How a surety bond works

A bond is a three-party promise. The contractor (the principal) buys it, the surety company backs it, and the party it protects (the obligee) can make a claim if the contractor fails. The U.S. Small Business Administration sums up the three project bonds this way: a bid bond ensures the bidder will provide payment and performance bonding, a payment bond ensures full payment to suppliers and subcontractors, and a performance bond ensures the contract is completed.

Performance bonds

A performance bond protects the owner. If the contractor defaults, the owner claims on the bond and the surety answers for the unfinished work. In Oregon, a public improvement contract estimated at more than $100,000 (more than $50,000 for highways, bridges and transportation) needs a performance bond equal to the full contract price. The contracting agency may waive it, or accept a cashier's or certified check for part or all of it.

Payment bonds

A payment bond protects the people below the contractor: subcontractors, workers and material suppliers. On private jobs those people can file construction liens on the property. On public work the payment bond is their protection instead. Oregon requires one equal to the full contract price on the same public contracts that need a performance bond. In Washington, the public works bond covers both: the contractor's performance and payment of laborers, mechanics, subcontractors and material suppliers.

Bid bonds

A bid bond protects the owner during bidding. It guarantees that if a bidder wins, it will sign the contract and provide the performance and payment bonds; if it walks away, the owner can claim the bid security. In Oregon, public improvement bids over $100,000 require bid security, which can be a surety bond, an irrevocable letter of credit, or a cashier's or certified check, and it may not exceed 10 percent of the bid.

The Washington rules

• Public works bond. Under RCW 39.08.010, a public body contracting for work must require a surety bond conditioned on the contractor performing the contract and paying laborers, mechanics, subcontractors and suppliers.
• Small contracts. On contracts of $150,000 or less, the contractor may instead let the agency hold back 10 percent of the contract amount (more on how retainage works).
• Registration bond. Every registered Washington contractor carries a bond of $30,000 for general contractors or $15,000 for specialty contractors (since July 1, 2024), covering unpaid wages, state taxes, suppliers and court awards for breach of contract.

License bonds are a different thing

Every licensed contractor in Oregon carries a license bond with the Construction Contractors Board, and its size depends on the endorsement. Since January 1, 2024, a Commercial General Contractor Level 1 bond is $80,000 and a Level 2 bond is $25,000. Contractors doing public works also carry a separate $30,000 public works bond for prevailing wage claims. A license bond is a floor for the whole business, not a guarantee of your project. So "is the contractor bonded?" and "will the contractor bond this job?" are two different questions.

What owners of private projects should know

• The law does not require bonds on private work in Oregon or Washington; the contract does. That is the case on private build-outs like the 2,068 square foot Zaiqa Indian Cuisine restaurant we built in Ridgefield.
• Ask early. If your contract will require bonds, tell your contractor during preconstruction so they are in the price from the start.
• Liens still apply. Without a payment bond, unpaid subs and suppliers can lien a private property, which is why lien waivers matter at every pay request.
• Check the licence. Look up any contractor on the Oregon CCB or Washington L&I site before you sign; see who is responsible for pulling permits for why the licence holder matters.

Frequently asked questions

The bottom line

A bid bond gets the contract signed, a performance bond gets the work finished, and a payment bond gets the subs and suppliers paid. Oregon and Washington require them on public works above set thresholds; on private work the contract decides. Every licensed contractor also carries a license bond, which protects the public up to a fixed amount but is not a project guarantee.

Modern Northwest has built commercial projects across Portland and Southwest Washington since 2005. More construction terms are in our commercial construction glossary. Tell us about your project.