Government agencies require P&P bonds over certain thresholds to protect taxpayers from catastrophic impacts.

• Federal agencies are legally obligated to require P&P bonds on projects over $150,000 per the Miller Act and FAR 28.102-2 , but often will require for lesser contract values.
• Each state and municipality has varying requirements.
• In Florida, P&P bonds are required for $200,000 but given local public entity discretion to waive bonds between $100,000 and $200,000.

Non Government Obligees:

• Banks often require P&P bonds as a condition of the bank financing for a project since its a critical risk mitigation tool. They usually will require a dual obligee rider (aka multiple obligee rider) that extends P&P bond protections to them.
• General Contractors (GCs)  will manage risk by requiring subbonds from subcontractors in order to mitigate the cost, schedule and performance risks that can disrupt the GC's contractual obligations if subcontractor has issues.

General Contractors (GCs) use subbonds to mitigate the cost, schedule and performance risks that can disrupt the GC's contractual obligations if subcontractor has issues. 

A 2022 Ernst & Young study found bonded construction projects significantly outperform unbonded ones in multiple metrics including:

• Much lower default rate
• Faster completion times (5 times more likely to be completed on time or ahead of schedule).
• Lower completion costs (85% less)
• In cases where subcontractor faces financial distress, bonded subcontractors are 5 times more likely to prioritize bonded projects over non-bonded projects.

GC subbond policies will vary and are often based on the below approaches:

• Bond back all subs with subcontract amounts exceeding certain thresholds such as $250,000 or $500,000;
• Bond subcontracts that are on or adjacent to project’s critical path;
• Newer subcontractor relationship; 
• Project specific reasons like GC is being required to bond back subs by Owner, Bank, Insurance/Surety, etc.  

When Owners require an Owner-specific P&P bond form in their contract, they usually provide you with that form as a part of the contract award docs or even the bid solicitation docs. When they don't provide it, you may need to reach out to them if version specified is not on their agency website or in our extensive bond form library. If the contract doesn't clearly specify bond form or references an industry standard P&P bond form like AIA 312, we got you covered and we are happy to issue bond on one of our forms. When Multiple Obligee Riders are required, specific forms are often provided as well but we are happy to issue on one of our riders.

A Dual Obligee Rider (aka Multiple Obligee) is essentially an amendment to the Performance and Payment Bond that adds a second beneficiary, like a construction lender or bank, to the bond. This is a critical risk mitigation tool for the banks financing the project. The dual obligee rider extends your surety's obligation under the bond to the Additional Obligee. The rider gives the Additional Obligee direct rights to claim under the bond in the event of default. Dual Obligee riders should contain language that places both the primary Obligee and the Additional Obligee in the same position and subject both to the same defenses so surety's aggregate liability is limited to the penal sum of the bond. Not sure if you're required to have a Dual Obligee Rider? Typically these additional obligee requirements can be found in the contract's bond requirements or with the owner-specific bond forms, if required. Its the exception, not the rule. We're happy to issue dual obligee riders for you, reach out if you have questions.