The AIA A312 performance bond is the construction industry’s standard guarantee that a project will get finished according to its contract even if the contractor fails. Published by the American Institute of Architects, the form creates a three-party agreement: the contractor (the Principal), the project owner (the Obligee), and a surety company that stands behind the guarantee with its own money. Federal law requires performance bonds on government construction contracts over $100,000, and most private commercial projects use the same form because owners, lenders, sureties, and courts all recognize it.
Getting the Form and Filling It In
The A312 is a copyrighted document sold through AIA Contract Documents at aiacontracts.com, either as a single-use license or through a subscription to the full AIA library. Work from the current A312–2010 edition, which packages the performance bond with its companion payment bond. Older 1984-edition forms still circulate online and handle surety obligations and notice requirements differently, so confirm the edition before you start.
The first page is a cover sheet with blanks that tie the bond to a specific project and contract. Before you sit down with it, gather:
- The contractor’s full legal name and business address, exactly as written in the construction contract.
- The project owner’s full legal name and address.
- The surety company’s full legal name and principal place of business, taken from its corporate registration.
- The date of the underlying construction contract. The bond date cannot be earlier than this.
- The bond amount, written out and in figures. This is typically 100 percent of the construction contract price, and the AIA’s own instructions note that each bond — performance and payment — is often written at the full contract amount.
- A description of the work, including the physical address of the site and the scope covered.
- Any negotiated changes to the standard bond terms, which go in Section 16. If there are none, check “None.”
The bond amount matters because it sets the ceiling on what the surety owes under most of the remedy options described later.
Executing and Delivering the Bond
After the cover page is filled in, authorized representatives of both the contractor and the surety sign. The person signing for the surety is almost always an attorney-in-fact, meaning someone authorized to bind the surety company through a power of attorney. That power of attorney has to be attached to the bond document itself. State laws commonly require this, and federal agencies that accept bonds impose the same rule.
Many obligees also require the surety’s corporate seal as additional authentication. Whether the seal is embossed or electronic depends on the obligee and the state where the project sits. Notarization practices vary too. Some states and obligees require traditional in-person notarization, while most states now authorize remote online notarization. Check the construction contract’s bonding requirements and local law before the signing appointment so you don’t have to redo it. If the parties use electronic signatures, the platform has to comply with applicable electronic transaction laws.
The executed original goes to the project owner, who holds it for the duration of the project. Store it with the prime construction contract, because the two documents work together and the bond’s protections are tied directly to the contract terms.
What the Bond Costs
The contractor pays the premium, not the owner. For well-qualified contractors in 2026, combined performance and payment bond premiums typically run about 1 to 3 percent of the contract value. A contractor bonding a $2 million project might pay $20,000 to $60,000 for both bonds together. Higher-risk applicants pay more.
Sureties underwrite bonds much the way lenders underwrite loans. The contractor’s personal credit score, business financial statements, size of the contract, type of work, and project location all factor into the rate. Construction bonds get deeper scrutiny than commercial bonds because the surety is guaranteeing project completion, not just a dollar amount. Contractors with thin financials or a history of claims pay at the upper end of the range or may need to post collateral.
How a Claim on the Bond Works
The protections do not activate automatically. Section 3 of the A312 lays out a specific sequence the owner has to follow, and skipping steps can jeopardize the whole claim. Hiring a replacement contractor on your own before the surety has had its chance to respond is one of the fastest ways to lose coverage.
Step One: Notice and Conference
Under Section 3.1, the owner sends written notice to both the contractor and the surety stating that the owner is considering declaring a contractor default. The notice should say whether the owner wants a conference among all three parties to discuss performance. If the owner does not request one, the surety has five business days after receiving the notice to request one itself. Any conference must be held within ten business days of the surety’s receipt of the owner’s notice.
Section 4 softens this step. If the owner makes a procedural mistake with the Section 3.1 notice, the surety is not automatically released. It has to show that the notice failure caused “actual prejudice,” meaning real harm rather than a technicality.
Step Two: Declaration of Default and Termination
If the conference doesn’t fix the problem, Section 3.2 requires the owner to formally declare the contractor in default, terminate the construction contract, and notify the surety of both actions. Unlike the Section 3.1 notice, these are hard conditions. The surety can raise a failure here as a defense without having to prove actual prejudice.
Step Three: Agreement to Pay the Balance
Section 3.3 adds a condition owners sometimes overlook: the owner must agree to pay the remaining contract balance either to the surety or to whichever replacement contractor finishes the work. The surety is stepping into the contractor’s shoes and needs to know the project funding is still there. If the owner has already spent down the contract funds or diverted them, the surety’s obligation may never activate.
All three conditions must be satisfied, and the owner itself must not be in default, before the surety is on the hook.
What the Surety Can Do in Response
Once the owner has met every Section 3 condition, Section 5 requires the surety to act promptly and at its own expense. It picks from four options:
- Section 5.1: Arrange for the original contractor to come back and finish, usually by injecting cash to solve the financial problem that caused the failure. The owner has to consent.
- Section 5.2: Take over the project itself and complete the construction contract through its own agents or subcontractors. This is the most hands-on option and carries unique liability consequences, discussed below.
- Section 5.3: Solicit bids from qualified contractors acceptable to the owner, arrange a new contract between the owner and a replacement contractor, and pay the cost difference.
- Section 5.4: Waive the right to arrange completion and either investigate and pay the owner what it owes, or deny liability with an explanation.
If the surety doesn’t pick an option and act, the owner can force the issue. After the surety’s failure to respond, the owner sends an additional written demand that the surety perform. Seven days after receiving that demand, the surety is deemed in default of the bond itself, and the owner can hire a replacement contractor independently and sue the surety for damages.
What Damages the Surety Owes
Section 7 lists three categories the surety is responsible for when it acts under Sections 5.1, 5.2, or 5.3:
- The cost to correct defective work and finish the remaining scope.
- Legal fees, design professional fees, and delay-related costs that resulted from the contractor’s default and from the surety’s own action or inaction under Section 5.
- Liquidated damages if the construction contract specifies them, or actual damages for delayed or non-performance if it doesn’t.
That third category catches many sureties off guard when the underlying contract has steep liquidated damages. If the contract charges $5,000 per day for late completion and the surety takes months to mobilize a replacement, the daily charges keep accruing. That is one reason sureties move quickly once a valid claim lands.
The Liability Cap and the Section 5.2 Exception
The bond amount on the cover page is the maximum the surety owes, but only when it chooses options 5.1, 5.3, or 5.4. Section 8 states that liability under those options “is limited to the amount of this Bond.”
Section 5.2 breaks that rule. When the surety takes over the project and performs the contract itself, its obligations are not capped at the face amount. Section 7 says the surety’s responsibilities “shall not be greater than those of the Contractor under the Construction Contract.” In practical terms the surety steps fully into the contractor’s shoes, liable for everything the contractor would have owed, including defect correction, delay damages, and completion costs, even if those amounts exceed the bond’s face value. That is why sureties choose the 5.2 takeover route selectively, usually only when they are confident the remaining work can be finished within budget.
When the Surety Can Deny the Claim
The bond is not a blank check. Several defenses can shrink or defeat a claim.
The strongest is Owner Default, defined in Section 14.4 as the owner’s failure to pay the contractor as required by the construction contract or to perform other material contract obligations. If the owner stopped making progress payments, imposed unauthorized scope changes, or breached the contract in a way that was not cured or waived, the surety’s obligations never arise. Section 3 conditions the entire bond on there being “no Owner Default.”
Short of outright owner default, the surety can argue that the owner failed to follow the Section 3 sequence. A blown Section 3.1 notice only matters if the surety shows actual prejudice, but Sections 3.2 and 3.3 are treated as strict conditions precedent. Missing either one is a complete defense.
Under Section 5.4.2, the surety may also deny liability if its investigation shows the contractor’s failure wasn’t really a default. Delay caused by the owner’s own design errors, or by events covered under a force majeure clause, falls outside what the bond guarantees.
The Two-Year Deadline to Sue
The A312 contains its own statute of limitations. An owner has to file any lawsuit on the performance bond no later than two years after the earliest of three triggering events: the date the owner declared the contractor in default, the date the contractor stopped working, or the date the surety refused or failed to perform its obligations under the bond. Missing this window forfeits recovery regardless of how strong the underlying claim is. Track all three dates from the moment a dispute starts so the deadline doesn’t slip past.
When This Bond Is Required
Federal projects are the clearest mandate. The Miller Act requires both a performance bond and a payment bond on any federal construction contract over $100,000. Most states have their own “Little Miller Acts” imposing similar requirements on state and municipal public works, though thresholds and specific rules vary.
Private commercial projects are not legally required to use performance bonds, but lenders and institutional owners routinely demand them as a condition of financing. The A312 is the form most commonly specified across all of these settings because its terms are well understood by courts, sureties, and construction lawyers. When a contract simply says “provide a performance bond,” the A312 is usually what the parties reach for.