What Is a Bid Bond?
A bid bond is a type of surety bond that acts as a guarantee that a contractor will stand by their bid at the quoted price. If the contractor is selected as the winning bidder, the bid bond guarantees they will enter into the contract and furnish the required performance bond and payment bond. If the contractor fails to uphold their bid — by withdrawing, refusing to sign the contract, or failing to obtain the required bonds — the bid bond provides financial protection to the project owner.
Bid bonds are the first step in the construction bonding process. Before you can compete for most public construction projects, you need a bid bond in hand. It tells the project owner that you are a serious bidder who has been vetted by a surety company and has the financial capacity to back up your numbers.
How Bid Bonds Work
When you submit a bid on a public construction project, the bid bond is included with your bid package. It creates a binding three-party agreement:
- You (the Principal) guarantee that you will honor your bid price and sign the contract if awarded.
- The Project Owner (the Obligee) is protected if you fail to follow through.
- The Surety Company backs your guarantee and will pay the project owner the difference between your bid and the next-lowest bid (up to the bid bond penalty amount) if you default.
If you win the bid and everything goes as planned, the bid bond simply expires and the process moves to the performance and payment bond stage. If you default on the bid, the project owner makes a claim against the bid bond, and the surety pays the damages — then comes to you for reimbursement under your indemnity agreement.
The typical bid bond penalty is 5% to 20% of the bid amount. On federal Miller Act projects, bid bonds are generally set at 20% of the bid with a maximum penal sum of $3 million.
How Much Do Bid Bonds Cost?
Bid bonds are always free through Surety Specialist. We do not charge contractors for bid bonds — ever. We believe no contractor should pay out of pocket just for the right to compete for work.
This is standard practice across most reputable surety bond agencies. The surety earns its premium when the contractor wins the project and purchases the performance and payment bonds. The bid bond is essentially a prequalification tool that costs the contractor nothing.
Be cautious of any agency that charges a fee for bid bonds. This is typically a sign that they are not working with quality surety markets or that they are adding unnecessary costs to the process.
Who Needs a Bid Bond?
Bid bonds are required on virtually all publicly funded construction projects:
- Federal projects: The Miller Act and Federal Acquisition Regulation (FAR) require bid bonds on all competitively bid federal construction contracts.
- State and local projects: Most states and municipalities require bid bonds on public works projects above their bonding threshold, which varies by jurisdiction.
- Some private projects: Large private developers and lending institutions sometimes require bid bonds on major commercial and industrial projects to ensure bidder commitment.
If you are a contractor who wants to compete for public sector work — schools, highways, government buildings, water treatment plants, military facilities — you need the ability to obtain bid bonds. Without them, you cannot submit a qualifying bid.
How to Get a Bid Bond: Step by Step
- Contact a surety bond specialist. Work with an agent who focuses on construction surety bonds and has access to multiple surety companies. At Surety Specialist, we work with over 80 A-rated sureties.
- Submit your application. For projects under $750,000, many sureties offer a streamlined process with a concise 2-page application. For larger projects, you will need to provide financial statements, a work-in-progress schedule, and background information.
- Get approved. The surety reviews your application and establishes your bonding capacity — the maximum single and aggregate bond amounts they will support. Approval can often be completed in 24 to 48 hours for straightforward applications.
- Receive your bid bond. Once approved, your agent issues the bid bond for the specific project. You include it with your bid submittal, and you are ready to compete.
The key is to establish your bonding relationship before you identify a specific project. Waiting until the last minute before a bid deadline creates unnecessary stress and may result in missed opportunities. Get pre-qualified with a surety so that bid bonds can be issued quickly whenever you need them.
What Happens If You Win the Bid?
When you are selected as the winning bidder on a bonded public project, the following sequence typically occurs:
- You sign the construction contract with the project owner.
- You furnish the performance and payment bonds required by the contract. Since your surety already prequalified you during the bid bond process, obtaining the final bonds is usually a smooth continuation of that approval.
- The bid bond expires once the performance and payment bonds are in place. It has served its purpose.
- You begin work on the project under the terms of the contract, with the performance bond guaranteeing completion and the payment bond guaranteeing payment to your subcontractors and suppliers.
Your surety may review the bid spread — the difference between your bid and the next-lowest bidder — before issuing the final bonds. If the spread is large (typically over 10%), the underwriter may ask questions about your competitive advantages and projected profit margin on the job.
Bid Bonds vs. Performance Bonds vs. Payment Bonds
| Feature | Bid Bond | Performance Bond | Payment Bond |
|---|---|---|---|
| Purpose | Guarantees bid commitment | Guarantees project completion | Guarantees subcontractor/supplier payment |
| Amount | 5%–20% of bid | 100% of contract | 100% of contract (varies) |
| Cost | Free | 1%–3% of contract | Included with performance |
| Who is protected | Project owner | Project owner | Subcontractors & suppliers |
| When issued | At bid submission | At contract signing | At contract signing |
For detailed information on each bond type, visit our dedicated guides for bid bonds, performance bonds, and payment bonds.
Get Your Free Bid Bond Today
At Surety Specialist, we make the bid bond process fast and easy. With access to over 80 top-rated surety companies, we can get you approved and bonded quickly — often within 24 hours. Bid bonds are always free, and for projects under $750,000, our streamlined application is just 2 pages.
Contact us today or call 877-914-0909 to get started. Do not let a missing bid bond keep you from competing for your next project.