Payment bond requirements checklist

The 14-point review every GC’s risk manager runs on a sub’s payment bond before the subcontract gets countersigned. Federal Miller Act, state Little Miller Act, and private commercial. CC Payment bond requirements checklist Federal Miller Act · State Little Miller Act · Private Commercial. 14-point review

Why this checklist exists

Most general contractors do not have a performance bond problem. The performance bond is the one everybody pays attention to. The surety verified the contractor’s capacity, the contracting officer confirmed the carrier’s Treasury status, the penal sum got matched to contract value at award. The performance bond is the document the GC’s project executive reads.

Payment bonds are different. Payment bonds are the document everybody assumes is fine because it came in the same envelope as the performance bond. The PDF arrives from the surety agent. Somebody at the prime opens the email, sees two bonds attached, files them in the project binder, and moves on. Six months later the sub’s electrical supplier goes unpaid and brings a Miller Act claim on the prime’s own payment bond. The prime turns to the sub’s bond to cover it and finds it was written for the wrong penal sum, signed under a Power of Attorney that expired before the bond’s effective date, by a surety that fell below the subcontract’s AM Best floor in March. The prime is answering the claim on its own bond while the bond meant to cover it is open to dispute.

The Miller Act trigger is $150,000 for federal contracts. The performance bond protects the federal government. The payment bond protects subs and suppliers, and it is the bond that gets claims filed against it. Performance bonds get called when the contractor walks off the job, which is rare. Payment bonds get noticed and claimed routinely. For unpaid retention, scope disputes, change orders that did not flow down, supplier invoices the sub never paid through. The volume is wildly higher.

State Little Miller Acts add another layer. Every state has some version of a payment bond requirement for public construction, though Vermont’s covers only its transportation projects. Several states require a bond on every covered contract, and where a statute names a dollar trigger it runs from $5,000 or less on some road and local contracts to over $500,000 for Virginia non-transportation work. The notice procedures, claim windows, and obligee structures vary by state. And on private commercial work, dual-obligee bonds (naming both the owner and the prime, or the prime and the lender) shift the claim mechanics again.

That is the part nobody trains the GC’s risk manager on.

Payment bonds are not interchangeable with performance bonds and they are not safe to file-and-forget. Sub payment bonds need verification at subcontract issuance, at every change-order amendment that increases sub contract value above the bond’s penal sum, and any time the surety’s status changes during the project. The 14 items on this checklist are what an experienced federal compliance officer or commercial-construction risk manager actually verifies on a sub’s payment bond, federal, state, or private, before the subcontract gets countersigned.

This is the operator’s artifact, not the surety broker’s marketing piece. Most online “payment bond checklist” content is gated lead-gen from surety companies who want the broker call. We built this after fifteen years of reviewing sub payment bonds across dozens of federal and state projects, and the 14 items below are what the marketing pages skip. The things that have actually caused bond rejections, claim disputes, and contracting-officer pushback on real projects.

You can use this manually for the next 200 subcontracts you issue. Or, when you are ready, Contracts Connected collects each sub’s bonds through the vendor portal with the rest of the compliance package, files them, and shows which subs are still missing one.

Who uses this

• Federal general contractors issuing subcontracts on federal projects subject to the Miller Act ($150,000 trigger)
• Mid-market commercial GCs issuing subcontracts that require sub payment bonds on private or state-funded work
• Prime contractors verifying sub payment bonds at subcontract issuance and at every contract value increase
• Risk managers running bond review as part of subcontractor prequalification before subcontract award
• Compliance officers auditing the bond file before contract closeout, claim defense, or surety renewal cycles
• Project administrators coordinating dual-obligee bond riders when ownership or financing structures change mid-project

What’s included. 14 verifications, federal + state + private

The checklist covers 14 things every GC’s risk manager must verify on every sub’s payment bond, before the subcontract gets countersigned and at every amendment that materially changes the sub’s contract value:

1. Confirm payment bond applicability. Miller Act $150K threshold (federal), Little Miller Act threshold (state), or contractual requirement (private). Federal construction contracts over $150,000 require the prime to furnish a payment bond under 40 U.S.C. 3131 and FAR 28.102-1. Whether a sub must also furnish one is set by your subcontract. State Little Miller Acts set their own triggers: several require a bond on every covered contract, and where a statute names a dollar figure it runs from $5,000 or less on some road and local contracts to over $500,000 for Virginia non-transportation work. Private commercial contracts require sub bonds only when the contract says so. Identify which authority governs before you review the bond, because the penal sum, claim window and notice procedure all follow from it.
2. Verify the penal sum matches the bond amount your subcontract requires. On a federal contract over $150,000, the prime’s own payment bond must equal 100% of the original contract price plus 100% of any price increase, unless the contracting officer finds that amount impractical in writing, and it can never be less than the performance bond (FAR 28.102-2(b)(2)). A sub’s bond is sized by your subcontract, so check the clause. Some states allow less than 100% on public work, such as Alabama (at least 50%) and Tennessee (at least 25%). Confirm the bond’s written-out and numeric penal sums match each other and the amount your executed subcontract requires, because transposition errors are common.
3. Verify the surety appears on Treasury Circular 570 when the contract or statute requires it. A surety company on a federal Miller Act bond must appear on the Treasury Department’s current Circular 570 list at fiscal.treasury.gov, and the bond should fall within its listed underwriting limit unless the excess is coinsured or reinsured (FAR 28.202). On a sub’s bond, a Circular 570 requirement comes from your subcontract, so check the clause. Verify the listing at the source, not from the surety’s website or the agent’s certificate, because Treasury posts changes during the year. On state and local work, check the state’s bond statute. Louisiana, for example, requires a public works surety licensed in Louisiana that is on the Treasury list or is domiciled in Louisiana or owned by Louisiana residents (La. R.S. 38:2219), and Illinois requires a surety licensed by its Department of Insurance (30 ILCS 550/1). On private work, Circular 570 status matters only if the contract asks for it.
4. Confirm the surety’s AM Best rating meets the minimum your subcontract sets. No federal rule sets an AM Best rating for Miller Act sureties. Federal acceptability runs through Treasury: a certificate of authority, a Circular 570 listing, the underwriting limit, and a license in the state where the bond is written. An AM Best floor on a sub’s bond comes from your subcontract or the owner’s contract, so check what yours says. AM Best ratings reflect a surety’s financial strength. Pull the rating from ambest.com at issuance, not from the surety’s marketing materials or the agent’s email signature, and re-check it each year on multi-year subcontracts.
5. Verify obligee and principal names are correct and complete on the bond face. On a sub’s payment bond, the sub is the principal and the prime contractor is the obligee, because the prime is the party the sub contracted with. The United States is the obligee only on the prime’s own federal Miller Act bond, where the prime is the principal. Private commercial bonds may add the owner or the lender as another obligee. Check every name against the legal entity on the subcontract, not a d/b/a, and send a bond that names the wrong party back for re-issuance.
6. Confirm contract reference and project description match the executed subcontract. The bond face should reference the subcontract number, project name, project location, and contract date. A bond referencing the wrong project number or an old contract date is defective on its face. Match every reference field against the executed subcontract; if the sub’s contract number was assigned after the bond was issued, the surety must re-issue or attach a rider tying the bond to the correct contract reference.
7. Verify Power of Attorney from surety to attorney-in-fact is attached and current. The bond is signed by an attorney-in-fact, not the surety company directly. The Power of Attorney (POA) authorizing that signer must be attached to the bond and dated on or before the bond’s effective date. Federal bond forms require anyone signing for a surety as attorney-in-fact to furnish evidence of that authority, and the same check protects you on a sub’s bond: a missing or expired POA leaves no proof the signer could bind the surety. Verify the POA is current both at issuance and any time the bond gets re-presented (such as during a claim defense).
8. Confirm signatures, seals, and the signer’s authority are complete. The federal payment bond form (SF 25-A) has signature blocks for the principal and each surety, and its instructions tell corporations to affix their corporate seals, though some agencies waive the seal under a FAR class deviation. The form has no notary block. A sub’s bond follows the form your subcontract requires, so if it or the state form calls for notarization, check that too. Missing signatures, a missing seal where one is required, and a signer with no proof of authority are the defects to catch. Verify every signature block before filing.
9. Verify jurisdictional rider matches the state where the work will be performed. State Little Miller Acts impose state-specific notice and claim procedures that differ from the federal Miller Act. Which statute applies turns on who awarded the prime contract. A contract a federal agency awards follows the federal Miller Act, even when a state shares the cost. A job a state or local agency awards follows that state’s statute, even when federal grants pay for it, so confirm which public body awarded the prime contract before you review the rider. Send a sub’s bond that lacks the rider your subcontract calls for back to the surety before you countersign.
10. Document the payment bond claim notice procedure and address. Under the federal Miller Act, a claimant who contracted with a subcontractor, but not with the prime, must give the prime written notice within 90 days after its last labor or material (40 U.S.C. 3133(b)(2)). Subs and suppliers who contracted directly with the prime need no notice. Anyone further down the chain, such as a supplier to a sub’s sub, has no Miller Act bond rights. State notice rules vary widely: California’s bond claim reaches back only 20 days before a claimant’s preliminary notice, New York allows 120 days after last work, Illinois and Oregon allow 180 days, and Texas sets a deadline for each month of unpaid work. Keep the surety’s claim address, the prime’s contact for receiving notices, and the sub’s notice protocol in the bond file, because a mishandled notice can pull the prime into a claim defense it did not need.
11. Confirm awareness of the payment bond claim filing window for the governing jurisdiction. A Miller Act suit must be filed in federal district court within one year after the claimant’s last labor or material. State deadlines differ in length and in the event that starts the clock: Texas requires suit within one year after the claim notice is mailed, California within six months after the stop payment notice period closes, New York within one year after the public owner completes and accepts the project, and Oregon within two years after last work. Capture the governing deadline in the bond file at issuance so the GC’s accounting team knows when retention can be released without claim exposure.
12. Review pay-when-paid and pay-if-paid carve-outs in the underlying subcontract for bond claim implications. A federal appeals court has held that a pay-when-paid clause does not bar a Miller Act claim against the payment bond surety, because the claim accrues 90 days after the claimant’s last work, not when the government pays the prime (Walton Technology v. Weststar Engineering, 9th Cir. 2002). Pay-if-paid clauses, where a state enforces them, get more complicated. If the subcontract has aggressive pay-if-paid language, document the surety’s awareness of it at bond issuance, because the surety’s claim-defense posture depends on whether the underlying obligation is enforceable.
13. Check for dual-obligee and multi-obligee considerations on private commercial work. Private commercial payment bonds frequently name multiple obligees. The prime and the owner, the prime and the lender, or all three. Each obligee has separate claim rights against the bond. Verify all named obligees are spelled correctly and match the actual project parties. Multi-obligee structures shift the claim mechanics and the bond’s coverage. Never assume a single-obligee bond satisfies a project that contractually requires dual-obligee structure.
14. Document the curative path for defective bonds. Re-issuance, rider, or replacement bond. When any of the items above fails review, the bond is defective. Common cures: surety re-issues with the corrected information, surety attaches a rider correcting a specific field, or the prime requires the sub to obtain a replacement bond from a different surety. Whichever path is chosen, document it in the bond file with the dates of defect identification, surety notification, and curative action. Bonds that sit in the file uncured become claim-defense problems when the bond eventually gets noticed.

How to use the checklist

Run this checklist at three checkpoints on every sub payment bond: at subcontract issuance (every item, top to bottom), at every change-order modification that increases sub contract value above the bond’s penal sum (items 2, 6, and 9 minimum), and at any time the surety’s Treasury 570 status, AM Best rating, or licensure changes during the project (items 3 and 4).

For each bond received from a sub:

• Print the checklist or open the working Excel.
• Walk down all 14 items in order, marking each
• OK, Flag, or Reject and re-issue.
• Anything Flagged needs surety follow-up by end of the next business day. Pull the AM Best rating screenshot, the Treasury 570 page, or the Power of Attorney directly from the source. Do not accept the agent’s verbal confirmation.
• Anything Rejected stops subcontract countersignature until the bond is cured (re-issued, rider attached, or replaced).
• File the completed checklist alongside the payment bond, the performance bond, the POA, the Treasury 570 verification (if federal), the AM Best rating printout, and any jurisdictional rider documentation. The completed checklist is your contemporaneous evidence that the bond was reviewed at issuance. Discoverable evidence in any future claim defense.
• Pair this checklist with B001, Performance bond requirements checklist (federal), the two are complementary. Performance bonds protect against contractor default. Payment bonds protect downstream subs and suppliers from non-payment. Most federal Miller Act subcontracts require both, and the verification cadence is the same.

Items 3 (Circular 570 status) and 4 (AM Best rating) can change after the bond is issued. Treasury can terminate a surety’s authority mid-contract, which takes it off federal bonds, and an AM Best downgrade can drop a surety below your subcontract’s floor. Set up an annual recurring review on every multi-year subcontract.

Stop catching defective payment bonds at claim time.

Use the checklist above to catch a defective bond before you countersign. Contracts Connected collects each sub’s bonds through the vendor portal along with their COIs, W-9s and licenses, files them where you can find them, and shows which subs are missing one, so the bond file stops being a binder of PDFs nobody reads until a claim arrives.

For educational purposes. These templates, checklists, and trackers are operator-built starting points designed to help you move faster on the kind of work that usually drowns construction admins in email chains. They are not legal, insurance, accounting, or tax advice. Each project, jurisdiction, and contract has its own quirks. Review the document, refine the language, and consult your attorney, broker, CPA, or compliance officer before relying on it for a live project decision.

Frequently asked questions about payment bond requirements

Related templates

• Performance bond requirements checklist (federal)The companion review for the performance bond. Verify carrier capacity, penal sum, and POA before the prime’s subcontract gets countersigned.
• Certified payroll (WH-347) review checklist for primesThe 12-step weekly review for certified payroll on Davis-Bacon and federal-funded jobs.
• Subcontract package checklist (commercial)Every document the subcontract package needs before the sub starts work. Bonds, COIs, W-9s, signed scope.
• Pay-app G702/G703 review checklistThe line-by-line review every PM runs on the AIA G702/G703 application for payment.