Never heard of either but if the client is using a qualifications based selection process, a performance bond should not be needed.  I have no idea how a material and payment bond applies for design services.  Most states do not allow design professionals to lien a property which the payment bond is intended to protect.

I would be interested in hearing more on this subject.

Don Phillips
http://worthingtonengineering.com

Performance bonds insure there is sficent capitol (up to the contract amount)to pay for the completion of a project should the contractor default. The bonding company takes over as the GC and completes the work. Since the design process is ussually calulated on an hourly basis and paid in arears, there is little risk of contracting for performance that will not be delivered. Should that be the case, and another designer need to take over, it is not that difficult to compute the value of the work complete to a certian date. Performance bond do little for the design process. Payment bonds insure payment of suppliers or subcontractors which in your case might be specialty engineers, drillers etc. Again, unlike construction, the number of contractors are few and the percentage to the total contract will small. A better method would a notarized statement from the sub engineer saying he recived his last invoice from you prior to the state paying your next invoice. (i.e. You send a statment with your feb. invoice that your engineer says he was paid for jan.)
Payment and performance bonds are linked and will typically cost about 2% of the gross, so it is a significant part of the profit if you don't get reimbursed. Also bonding is much harded to get these days if you are not already bonded. It is not like getting an insurance policy.
I would try to find out what is going on. Sounds like someone got moved from construction contracts to design contracts.
If sombody still wants something, a cheaper and faster answer may be an irrevocable letter of credit, generally issued for about 10% of the contract value. These are issued by your bank, and you will be charged for it also. (plus you need to have at least 10% of the contract in an account at the bank)

I have never heard of this and would definitely raise an eyebrow to this.  As DRC1 said, it sounds like a spec writer may have been filling in for a sick colleague or something of the like.  If this really is what the governmental agency is wanting, then you have to ask yourself if this is really worth the heartburn that it will take.  I find for every suspect job I decide probably is not in my best interest, 2 non-suspect jobs come along.  My motto....."Dont sell your soul to the devil, because he wins everytime."  Good Luck