Illinois Payment and Performance Bonds

What are Illinois payment and performance bonds?

Illinois payment and performance bonds are contract surety bonds that a contractor posts after winning a construction job. The performance obligation guarantees that the contractor will complete the contract. The payment obligation guarantees that subcontractors, laborers and suppliers who furnish labor, materials, equipment or rented tools to the job will be paid.

Under the Illinois Public Construction Bond Act (30 ILCS 550), the State and every unit of local government must require a bond covering both obligations on public works contracts above the statutory threshold, which is currently $150,000 for most owners. Each bond involves three parties: the contractor (the principal), the surety that issues the bond, and the project owner (the obligee), such as a state agency, city, county, school district or private owner. The two obligations are usually issued together for a single premium.

Key facts

Who needs Illinois payment and performance bonds?

Any contractor that wins an Illinois public works contract above the bond threshold must furnish a bond before the work begins. That includes work for state agencies such as the Capital Development Board, public universities and community colleges, IDOT and the Illinois Tollway, as well as counties, cities, villages, townships, school districts, park districts, sanitary and water districts and transit agencies. Many local owners also require bonds on smaller contracts, which the Act lets them do by ordinance or resolution.

Private owners, lenders and general contractors also require these bonds by contract on commercial, multifamily and industrial work, and generals often require them from their larger subcontractors. The two obligations protect different people:

The bid documents control each project. Owners fix the bond amount, can require bonds below the statutory threshold, and private owners set their own amounts and forms. Contractors and agents should read the solicitation before quoting.

What makes Illinois's bonds different

Illinois's bond rules differ from most states in a few ways agents and contractors should know before quoting.

• The threshold is temporarily higher. Through December 31, 2028, bonds are required only on public works contracts over $150,000, or over $500,000 for IDOT and the Illinois Tollway. On January 1, 2029, the threshold returns to $50,000 for every public owner. Contractors bidding work in 2028 and 2029 should watch which rule applies.
• Local owners can still require bonds on small jobs. Until 2029, cities, counties, school districts and other local units may require bonds on contracts of $150,000 or less by ordinance or resolution, and many do.
• The surety rating is written into law. The surety must be licensed by the Illinois Department of Insurance and carry a financial strength rating of at least A- from A.M. Best, Moody's, S&P or a similar agency. Sureties below that rating can't write Illinois public works bonds.
• Letters of credit can replace small local bonds. On local contracts under $100,000 that use no motor fuel tax, federal-aid or other state funds, the owner may accept a non-diminishing irrevocable bank letter of credit instead of a bond. On state construction contracts, a contractor can't be required to post a cash bond or letter of credit in addition to or instead of the surety bond.
• CDB and university bonds carry a default procedure. Bonds for the Capital Development Board and public universities must spell out how the surety responds to a default. The surety must respond within 15 working days of a default notice and state its course of action within 30 working days.
• The suit window is short. A payment bond claimant must file a verified notice within 180 days of its last work, can't sue until 120 days after its last work, and must sue no later than 6 months after the public owner accepts the project. The 6-month window is one of the shortest in the country.
• Subcontractors can also lien public funds. In addition to the bond claim, Illinois lets unpaid subcontractors and suppliers serve a lien notice on contract funds the public owner still holds. The owner withholds the claimed amount, but the claimant must file suit within 90 days of the notice or the lien ends.
• Bonded jobs get a retainage cap. Local governments may withhold no more than 10% of payments to a bonded contractor until the job is 50% complete, then no more than 5%. Contractors must apply the same limits to their subcontractors, and most state agency contracts follow the same rule starting June 1, 2027.

Bond requirements by project owner

The Public Construction Bond Act sets the rule for the State and every unit of local government, with a higher temporary threshold for IDOT and the Tollway. Each owner fixes the bond amount and sets bid security in its bid documents.

Most Illinois public owners require bonds of 100% of the contract price and bid security of 5% to 10% of the bid. IDOT and the Tollway publish the surety on each public works contract, regardless of value. Check the bid documents for each project.

Circle Surety's contract bond program gives contractors an instant program approval. Bid, performance and payment bonds for individual jobs are then issued under that approval in minutes. Agents can set up contract bond capacity for a client once and bond each new Illinois job as it comes.

How much do Illinois payment and performance bonds cost?

Illinois payment and performance bond premiums are typically calculated on a sliding scale, where the rate usually steps down as the contract amount grows. In the example below, the rate typically starts at 3% on the first $100,000 of the contract price and steps down to 1% on the portion over $2,500,000, though the tiers and rates usually vary by surety. One premium covers both bonds together; the payment bond is usually included at no added cost when it is written with the performance bond. The rates below are a hypothetical example; the actual rate can only be determined after a completed application is received. Premium rates by contract amount:

Estimated one-time premiums for common contract amounts:

Estimates cover the performance and payment bonds together for the life of the contract; minimum premiums vary by surety. Change orders that raise the contract price raise the premium. Contracts over $2,000,000 require additional financial information.

Circle Surety can provide instant quotes for these and many other bonds through our online portal.

How to get Illinois payment and performance bonds

1. Read the bid documents. Confirm whether a bond is required at the contract value, the bond amount, the owner's bond form and any default procedure the owner requires.
2. Line up the bid bond. If the job requires bid security, get the bid bond before bid day. Illinois public owners commonly ask for 5% to 10% of the bid.
3. Apply online. Fill out the short form below, as the contractor or on your client's behalf. A soft credit check is required to determine program approval and the final premium.
4. Gather the contract details. After award, provide the contract price, the owner's name, the contract or project number and the contractor's exact legal name as it appears on the contract.
5. Sign and pay. All contract bonds require a general indemnity agreement signed by the company and its owners. Once it is signed and the premium is paid, the bond is issued by an A- or better surety with its power of attorney attached, usually in minutes.
6. Deliver the bond to the owner. Submit the original bond with the signed contract before work begins. Keep a copy, since subcontractors and suppliers may ask for it when they file a claim.
7. Report change orders. Notify the surety of change orders that increase the contract price so the bond amount and premium can be adjusted.

Requirement details

Bond conditions and forms

Every Illinois public works bond must be conditioned on completion of the contract and payment for materials, apparatus, fixtures and machinery and for all labor, whether performed by the contractor or a subcontractor. Those payment conditions are read into the bond whether or not they appear in the form. Rented equipment and tools used or consumed on the site count as materials and machinery. Owners use their own forms, often an AIA or agency form bound into the bid documents.

Surety requirements

The surety must be licensed by the Illinois Department of Insurance to write surety bonds and hold a financial strength rating of at least A- from A.M. Best, Moody's, S&P or a similar agency. The contractor may choose its own surety, agent or broker, subject to the owner's reasonable approval.

Threshold changes through 2029

The bond threshold has changed several times. Through December 31, 2028, it is $150,000 for the State and local governments and $500,000 for IDOT and the Tollway, and local governments may require bonds below $150,000 by ordinance or resolution. On January 1, 2029, the threshold returns to $50,000 for every public owner. IDOT and the Tollway must publish defaulted contracts, payment claims and the surety on each public works contract.

Emergency work and letters of credit

On emergency repairs under the Illinois Procurement Code, proof of payment for all labor and materials may be accepted instead of a bond. Local governments may accept a non-diminishing irrevocable bank letter of credit instead of a bond on contracts under $100,000 that use no motor fuel tax, federal-aid or other state funds, and the letter of credit must contain all the provisions the Act requires of a bond.

Retainage and prompt payment

On bonded local government contracts, retainage may not exceed 10% of any payment before the job is 50% complete. At 50% completion, the owner must reduce retainage to no more than 5%, and contractors and subcontractors must apply the same limits down the chain. A new law extends those limits to most state agency contracts beginning June 1, 2027. Private projects follow the same 10% and 5% limits under the Contractor Prompt Payment Act.

Private projects and mechanics' liens

Illinois doesn't require bonds on private projects, but owners and lenders often require them by contract. Subcontractors on private work generally must serve notice within 90 days of completing their work to preserve lien rights against the owner. An owner, contractor or lender can petition the court to substitute an eligible surety bond for a lien, which clears the property and moves the claim to the bond, with attorney fees available to the prevailing party.

Claims: what the bonds cover

• Who can claim on the performance bond: the public owner named as obligee, after declaring the contractor in default. On CDB and public university bonds, the surety must follow the statutory default procedure and timelines
• Who can claim on the payment bond: anyone who furnished materials, apparatus, fixtures, machinery or labor to the contractor or a subcontractor, including rented equipment and tools used on the site, and was not paid
• Verified notice: the claimant must file a verified notice of its claim with the officer, board or department that awarded the contract within 180 days of its last work or delivery, and on local projects also with the clerk or secretary of the political subdivision, then send a copy to the contractor within 10 days
• Earliest suit: no suit may be filed until 120 days after the claimant's last work or delivery, unless the owner and contractor reach final settlement sooner
• Deadline: suit must be filed no later than 6 months after the public owner accepts the project, in the circuit court of the judicial circuit where the contract was performed
• Lien on public funds: a subcontractor or supplier can also serve a sworn notice of lien on unpaid contract funds. The owner withholds the claimed amount, and the claimant must file suit within 90 days of the notice or the lien ends
• Limits: total claims can't exceed the penal sum of the bond, and a lien on public funds reaches only money that becomes due to the contractor after the notice is served
• Your obligation: a bond isn't insurance for the contractor. If the surety pays a claim, the contractor and its indemnitors must repay it. Agents should make this clear to clients before issuance

Sources

• 30 ILCS 550/1 — Public Construction Bond Act, bond requirements
• Public Act 104-0168 (2025) — Bond thresholds and state agency retainage
• Public Act 98-1018 — Surety rating requirement
• IDOT — Subcontractor lien and bond claims
• City of DeKalb v. Sornsin, 32 Ill. 2d 284 (1965) — Notice and suit deadlines
• Saul Ewing — Recent retainage reforms in Illinois
• National Law Review — Bonding over mechanics liens under Section 38.1