In short
A surety bond is a three party promise. The contractor pays a surety company to guarantee performance and payment to the project owner. If the contractor fails, the surety pays to finish the work or to pay subcontractors and suppliers. On federal and state public projects, the Miller Act and state Little Miller Acts require these bonds above certain dollar amounts. Most AI data center projects are private, so the statutes do not apply. But lenders always require 100 percent performance and payment bonds. Subcontractor default insurance is a two party alternative that protects only the general contractor. The surety market faces emerging capacity strain from multi billion dollar megaprojects, prompting greater use of co surety and syndicated surety programs. Aon megaprojects surety capacity analysis, Swiss Re co surety and syndicated solutions
What is a surety bond in construction?
A surety bond is not an insurance policy. It is a credit guarantee. Three parties are involved. The contractor who must perform is the principal. The project owner who is protected is the obligee. The company that issues the bond is the surety. If the contractor does not finish the project or does not pay its subcontractors and suppliers, the surety must step in. The surety then has the right to recover from the contractor. So the bond is ultimately backed by the contractor’s own balance sheet.
A performance bond guarantees that the work itself gets done. A payment bond guarantees that everyone who supplies labor or materials gets paid. On public projects, the law requires both to protect taxpayers and workers. On private projects, the parties agree to use them in the contract.
When does the federal Miller Act apply to data center projects?
The Miller Act requires performance and payment bonds on federal construction contracts. It applies when the federal government directly awards a contract for a public building or public work and the contract price exceeds $100,000. Under the Federal Acquisition Regulation, the practical threshold is $150,000. For construction contracts exceeding $35,000 but not exceeding $150,000, the contracting officer shall select two or more alternative payment protections. FAR 28.102-1, FAR Part 28
The performance bond amount is set by the contracting officer at what they consider adequate. The payment bond must equal the total amount payable by the terms of the contract, unless the officer determines in a writing supported by specific findings that a payment bond in that amount is impractical, in which case the contracting officer shall set the amount of the payment bond. But the payment bond can never be less than the performance bond. 40 U.S.C. § 3131
A subcontractor or supplier who goes unpaid can make a claim against the payment bond. If the claimant has a direct contract with the prime contractor, no special notice is needed before filing suit. If the claimant contracted only with a subcontractor, they must give written notice to the prime contractor within 90 days of their last labor or material delivery. A lawsuit must be filed no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action. 40 U.S.C. § 3133, GSA Miller Act Brochure
The Miller Act matters for AI data centers only when the federal government is the owner. Most AI data center campuses are built by private companies and are not federal public works. So the Miller Act rarely applies directly. But its structure influences the bonding terms that private lenders adopt.
What do state Little Miller Acts require in the five major build markets?
Each state has its own version of the Miller Act for state and local public construction contracts. Below is a table of the key numbers and deadlines for the states that host much of the AI data center build out.
| State | Bond Threshold | Bond Amount | Notable Deadlines |
|---|---|---|---|
| Virginia | $500,000 (nontransportation), $350,000 (transportation) | Payment bond equals contract amount (or lower if authorized) | Lower tier notice must be given within 90 days. Suit must be filed within 1 year after last labor or material. |
| Texas | Performance bond over $100,000; payment bond over $25,000 (state/county) or $50,000 (municipal) | Both bonds at contract amount | Monthly notice to prime and surety by the 15th day of the third month after each unpaid month. Second tier also sends a second month notice. Suit on a payment bond must be brought within 1 year after the notice of claim is mailed (a performance-bond suit runs 1 year from final completion). |
| Georgia | $250,000 (raised from $100,000 by HB 137 in 2025) | Both bonds at least contract amount | If no Notice of Commencement is filed, lower tier notice period is 90 days. If filed, the deadline is 30 days after filing or first furnishing. Suit must be brought within 1 year from completion and acceptance. |
| Arizona | No dollar threshold (all public contracts) | Both bonds 100% of contract price | Lower tier must serve a 20 day preliminary notice, then a 90 day notice after last work. Suit must be filed within 1 year from last work. |
| Florida | $100,000 (local exemption up to $200,000 available) | Contract price (capped at $250 million for contracts over $250 million if full bond not available) | Lower tier must provide notice of intent to look to bond within 45 days of first furnishing. A notice of nonpayment must be given between 45 and 90 days after final furnishing. Suit must be filed within 1 year from last furnishing, though this may be shortened to 60 days by a Notice of Contest. |
Va. Code § 2.2-4337, Va. Code § 2.2-4341, Tex. Gov’t Code § 2253.021, O.C.G.A. §§ 13-10-1 et seq., 36-91-1 et seq., A.R.S. § 34-222, A.R.S. § 34-223, Fla. Stat. § 255.05
Virginia
Virginia requires both a performance bond and a payment bond for nontransportation public contracts over $500,000. Transportation contracts funded partly or wholly by the Commonwealth require bonds over $350,000. First tier subcontractors do not need to give prior notice. All other claimants must give written notice to the prime contractor within 90 days of last supplying labor or materials. Suit must be filed within one year. Va. Code § 2.2-4341
Texas
Texas has a lower payment bond threshold than its performance bond threshold. A performance bond is needed when the contract exceeds $100,000. A payment bond is needed at $25,000 for state and county projects or $50,000 for municipalities. The bonds must equal the contract amount. Texas uses a rolling notice system. All payment bond beneficiaries must mail a written sworn statement of account to the prime contractor and surety by the 15th day of the third month after each month in which they performed unpaid work. If the claimant lacks a direct contract with the prime, they must also send a second month notice. Missing even one monthly notice can forfeit the claim. Suit must be brought more than 60 days after notice but within one year of the date notice is mailed. Tex. Gov’t Code § 2253.021, Tex. Gov’t Code § 2253.041, Tex. Gov’t Code § 2253.047, Tex. Gov’t Code § 2253.073, Tex. Gov’t Code § 2253.078
Georgia
Georgia raised its bond threshold to $250,000 in 2025 through House Bill 137. Both state and local public works contracts above that amount require performance and payment bonds at the contract amount. The notice rules depend on whether a Notice of Commencement has been filed. If not, lower tier claimants have 90 days from last furnishing to give notice. If one is filed, the deadline becomes 30 days after the Notice filing or 30 days after first furnishing, whichever is later. Suit must be brought within one year from completion and acceptance. O.C.G.A. §§ 13-10-65, 36-91-95
Arizona
Arizona is the strictest state among the five. It requires both performance and payment bonds on all public construction contracts, with no dollar threshold. The bond amount must equal 100 percent of the contract price. The surety must be a corporate surety licensed in Arizona. An individual cannot serve as surety. Claimants not in direct contract with the prime must serve a preliminary 20 day notice and then a 90 day notice after last furnishing. Suit must be filed within one year of last work. The prevailing party can recover attorney fees. A.R.S. § 34-222
Florida
Florida requires payment and performance bonds for state public construction contracts over $100,000. For county, city, or political subdivision projects, the official may exempt contracts up to $200,000. Florida has a unique megaproject provision. For contracts exceeding $250 million, if a bond at the full contract price is not reasonably available, the public owner must set the bond at the largest amount reasonably available, but not less than $250 million. This floor has not been tested on an AI data center public project yet. Florida also has a fraudulent notice rule. A claimant who willfully exaggerates an amount or includes work not performed loses all bond rights. Lower tier claimants must serve a notice of intent to look to the bond within 45 days of first furnishing. Then a notice of nonpayment must be given under oath no earlier than 45 days after first furnishing and no later than 90 days after final furnishing. Suit must be brought within one year of last furnishing, but the contractor can shorten that deadline to 60 days by recording a Notice of Contest of Claim. Fla. Stat. § 255.05
Do most AI data center projects fall under these laws?
No. The vast majority of AI data center construction is privately financed and developed. Hyperscalers like Amazon, Microsoft, Alphabet, Meta, and Oracle are building on their own land or through private developers. These are not public works. The Miller Act and the Little Miller Acts only cover contracts awarded by a government body. 40 U.S.C. § 3131(b), A Guide to the Miller Act & Little Miller Acts
On private projects, bonding is a matter of contract. Many private owners require surety bonds from their contractors to protect their company, lenders and shareholders from the cost of contractor failure. But the exact deadlines and procedures are written into the contract, not dictated by a statute. Construction Law Survival Manual
What is subcontractor default insurance and how is it different?
Subcontractor default insurance, or SDI, is a first party insurance policy bought by the general contractor. It reimburses the contractor if a subcontractor defaults. Unlike a surety bond, SDI involves only two parties, the general contractor and the insurance company. There is no obligee. The general contractor controls the claims process. It can declare a default and start fixing the problem immediately, without waiting for a surety investigation. Surety & Fidelity Association of America, NASBP & ASA Foundation
SDI covers direct costs to complete the work, indirect costs such as extended overhead and delays, and legal fees. Policies can cover completed operations for up to 10 years. Deductibles typically range from $350,000 to $2 million with co pay structures. Per claim limits of $125 million to $200 million are available. Aggregate program limits can exceed $500 million. In one recent example, an Alliant arranged program used three SDI markets to reach $200 million per claim and $600 million aggregate for a single AI data center project. Construction Superconference 2026, NASBP SDI study
However, SDI has important limits. It does not satisfy any statutory bond requirement on public projects. It does not protect subcontractors or suppliers. It provides no direct completion guarantee to the project owner. If the general contractor itself defaults, SDI does not step in to finish the project the way a performance bond surety would. For that reason, owners and lenders still require performance and payment bonds even when the general contractor carries SDI. Surety & Fidelity Association of America
About seven SDI carriers are active today. One carrier writes over half of the market premium. The total SDI market is estimated at $500 million to $600 million in fixed premium. No SDI default losses on AI data center projects are known yet, though policies have only been written in this market for about two years. Construction Superconference 2026
How are surety bonds used for utility interconnections and power agreements?
AI data center developers increasingly use surety bonds in place of cash deposits or letters of credit for utility interconnection agreements and power purchase agreements, called PPAs. A surety bond does not tie up cash or reduce borrowing capacity the way a letter of credit does. This off balance sheet treatment helps developers preserve liquidity for construction costs. WTW, Munich Re, Marsh
If a local utility does not accept a traditional surety bond, developers can use a surety backed letter of credit. The surety issues a bond that backstops a letter of credit, mirroring a traditional letter of credit, for use with utilities that do not accept traditional surety bonds. WTW
For PPAs, a surety bond can demonstrate the developer’s credit standing to a renewable energy provider. This helps secure favorable power rates and long term contracts, which are critical for AI data center operations. Tax alert
What is the capacity and pricing picture for the surety market right now?
The U.S. surety market generates roughly $8 billion in direct written premiums each year. At a typical rate of 1 percent to 3 percent of contract value, that supports a large volume of bonded construction. But individual AI data center projects are now reaching $10 billion or more in prime contract value. Some campuses cost $20 billion or more to build. A single AI data center campus can carry construction costs exceeding $20 billion, a figure that dwarfs the U.S. surety industry’s roughly $8 billion in annual direct written premium. Trade press, Trade press, Swiss Re, AM Best
To handle this, sureties and brokers have built syndication and co surety structures. WTW supports bond syndications ranging from $5 million to $500 million for AI data center developments. Munich Re can offer up to $250 million on a net basis from its own balance sheet. By combining several markets, programs can achieve $500 million in aggregate bonding for a single project. WTW
Despite the demand surge, surety pricing has stayed very stable. Premium rates have increased less than 1 percent in 13 of the past 14 quarters. The industry’s direct incurred loss ratio fell to 20.5 percent through the third quarter of 2025. The sector has posted net profit margins above 30 percent for eleven consecutive years. This stability stands out in an otherwise softening insurance market and suggests that sureties can deploy capacity on AI data center projects at rates that preserve favorable margins. Trade press
North America holds roughly half of the global surety market. The United States also requires performance bonds at 100 percent of contract value, far higher than other regions. Canada requires 50 percent. EMEA requires 10 percent. APAC requires 15 percent. This concentration means a large loss on an AI data center project could strain the system. No such loss has happened yet. Aon
The project pipeline keeps growing. U.S. AI data center construction starts reached $77.7 billion in 2025, a 190 percent increase over the year before. Another 76 projects valued at more than $88 billion are tracked for the first half of 2026. Hyperscaler capital spending is forecast to pass $600 billion in 2026. Roughly three quarters of that spending will go directly to physical AI infrastructure. Surety bonds are becoming increasingly important for AI data center construction. Trade press, Swiss Re
Key takeaways
- Public AI data center projects must follow the Miller Act or the relevant state Little Miller Act. Each state has its own threshold, notice rules, and lawsuit deadline. Know them before work begins.
- Private AI data center projects, which dominate the market, are not subject to those statutes. But lenders and developers contractually require 100 percent performance and payment bonds, often using AIA A312 forms.
- Subcontractor default insurance gives the general contractor more control over subcontractor defaults. It does not replace a performance bond and does not protect the owner. It cannot satisfy Miller Act requirements on public jobs.
- The surety market is under capacity strain from giant project sizes. Syndication and co surety structures are filling the gap. Premium rates have stayed flat for several years, which is unusual.
- AI data center developers are using surety bonds for utility interconnections and PPAs as a cheaper, off balance sheet alternative to letters of credit.
- Florida’s $250 million bond cap for megaprojects is a rare statutory accommodation, but it has not been tested on an AI data center public project.
- Texas has a unique monthly notice system. Missing one monthly notice can wipe out a claim. Arizona has no dollar threshold, so even small public contracts require full bonds.
- The SBA Surety Bond Guarantee Program helps small contractors get bonding, with contract limits of $9 million for non-federal contracts and $14 million for federal contracts. SBA Surety Bonds
Frequently asked questions
Q:What is the difference between a performance bond and a payment bond?
A:A performance bond guarantees that the contractor finishes the project according to the contract. A payment bond guarantees that the contractor pays its subcontractors and suppliers for labor and materials. Both are usually required together on public projects.
Q:Does the Miller Act apply to private AI data centers?
A:No. The Miller Act applies only to federal public works contracts. Private AI data centers are not covered. However, private lenders almost always require similar bonding as a condition of financing.
Q:What is the deadline to make a payment bond claim under the Miller Act?
A:A claimant who contracted directly with the prime contractor must file suit within one year after the last labor or material was supplied. A claimant who contracted only with a subcontractor must first send written notice to the prime contractor within 90 days of last work and then file suit within one year.
Q:What happens if I miss the notice deadline under a state Little Miller Act?
A:You lose your rights against the payment bond. These deadlines are strictly enforced. Always calendar the deadlines based on the state where the project is located.
Q:Can I use SDI instead of a performance bond?
A:No. SDI does not provide a completion guarantee to the owner. It only protects the general contractor against subcontractor defaults. On public projects, SDI does not satisfy statutory bond requirements. On private projects, owners and lenders still require performance and payment bonds.
Q:How much does a surety bond cost for an AI data center project?
A:The premium is typically 1 percent to 3 percent of the contract value. A $1 billion contract would pay between $10 million and $30 million in premium. Rates have been stable for several years.
Q:What is Florida’s $250 million bond cap?
A:For public contracts over $250 million, if a bond at the full contract price is not reasonably available, the public owner must set the bond at the largest amount reasonably available, but not less than $250 million. This cap can limit the bond amount on very large public projects in Florida.
Q:Are there enough surety companies to bond a $20 billion AI data center campus?
A:No single surety can bond that much on its own. But through co surety and syndication, multiple sureties can combine capacity to cover the project. Programs are being built to provide $600 million or more in aggregate bonding for a single project.
Q:Does a subcontractor need to send a notice in Texas every month?
A:Yes. In Texas, all payment bond beneficiaries must mail a sworn statement of account to the prime contractor and surety by the 15th day of the third month after each month of unpaid work. Missing even one monthly notice can forfeit the claim.
Q:Does Georgia require bonds for small public works?
A:As of 2025, the threshold is $250,000. Contracts below that do not require bonds under the state Little Miller Act. Local ordinances may impose their own requirements.
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.