If the contractor fails, the surety steps in to complete the work, hire a replacement, or pay the owner up to the bond's penal sum. On federal projects, the Miller Act requires a performance bond on construction contracts above the statutory threshold (the FAR sets the practical figure at $150,000), and most states impose parallel requirements through their own bond statutes. The bond amount is typically set at 100% of the contract price.
Unlike insurance, a bond is ultimately a form of credit: the surety expects to be repaid by the contractor for any loss it covers, which is why bonding capacity is underwritten much like a line of credit and why a contractor's total bonding limit caps how much work it can carry at once. Nonlinear reads bonding language straight out of the bid documents during Spec Takeoff, flagging the performance bond requirement and penal sum so contractors can confirm capacity with their surety before committing to a pursuit.
