In many cases, performance and payment bonds are needed by law on public construction projects. As these laws existed for many decades, few give thinking as to why such laws were enacted. Some contractors, who can't get the required bonds, protest that the laws are unfair since they, in effect, are denied admission to public construction projects.

More than 100 years ago, the federal government became worried about the high failure among the private firms it was using to do public construction projects. It discovered that the private contractor frequently was insolvent when the job was awarded, or became insolvent prior to the project was over. Hence, the government was frequently left with unfinished projects, and the tax payers were enforced to cover the additional costs rising from the contractor's default.

As government property is not an issue to mechanic's liens, material suppliers, the laborers and subcontractors were without remedy if they were not rewarded for their service. To protect it and those who worked on the projects, the government tried using individuals to serve as sureties. It is vital to note is that bid, performance, and payment bonds are not proposed to protect the contractors that have to post them. Instead, these are intended to guard the owner of the construction project against contractor failure and to also protect certain laborers, and subcontractors against nonpayment.