A general contractor is working on a public project with a contract value of $3.2 million. The performance bond amount is typically what percentage of the contract value?
Correct Answer
C) 100%
Performance bonds on public projects typically equal 100% of the contract value to ensure complete project performance.
Why This Is the Correct Answer
100% is correct. For public construction projects, the Miller Act (federal) and equivalent Little Miller Acts (state) require performance bonds equal to 100% of the contract value. This ensures that if the contractor defaults, the surety can fund completion of the entire project. A 100% bond on a $3.2 million contract means a $3.2 million bond.
Why the Other Options Are Wrong
Option A: 110%
110% is incorrect. No standard bond requirement exceeds 100% of the contract value. A bond greater than the contract amount is not used in standard practice because the bond covers the cost of completing the work, which is bounded by the original contract value.
Option B: 50%
50% is incorrect. A 50% bond is sometimes used on private projects with modified risk tolerance, but it does not provide adequate protection for public projects. The Miller Act mandates 100% for federal public work.
Option D: 75%
75% is incorrect. There is no standard that sets the performance bond at 75% of the contract value. This percentage would leave 25% of the project value uncovered in a default scenario.
Memory Technique
Public project + Performance Bond = 100%. Think of it as a FULL guarantee: the bond fully mirrors the contract. 'Public projects get full protection.' The math is simple: $3.2M contract × 100% = $3.2M bond.
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