Bid Bonds

A bid bond is a surety bond submitted with a contractor's bid on a construction project. It guarantees two things: that the contractor's bid is made in good faith, and that the contractor will enter into the contract at the bid price if they win.

Think of it as a promise backed by money. If a contractor submits the lowest bid on a $2 million road project and then decides they do not want the job, the project owner can file a claim against the bid bond. The surety pays the difference between the winning bid and the next lowest bid — up to the bond amount.

Bid bonds exist because competitive bidding only works when all bidders are serious. Without bid bonds, a contractor could submit an unrealistically low bid, win the project, and then back out — wasting everyone's time and taxpayer money.

The bid bond is usually the first bond in a three-bond sequence on construction projects: bid bond, performance bond, and payment bond. When a surety issues a bid bond, they are essentially saying "we would also be willing to issue the performance and payment bonds if this contractor wins."

Contractors who bid on bonded construction projects need bid bonds. This includes:

• Federal construction bidders: The Miller Act and FAR (Federal Acquisition Regulation) require bid guarantees on federal projects, typically at 20% of the bid amount
• State and municipal project bidders: Most public works require bid bonds, usually at 5-10% of the bid amount
• Highway and transportation contractors: DOT projects almost always require bid bonds
• Private project bidders: Some private owners require bid bonds on larger commercial projects

If you are a general contractor or large specialty contractor who bids on public work, you need a reliable source of bid bonds. Subcontractors occasionally need bid bonds too, depending on the project structure.

Bid bonds are among the least expensive bonds — and often free. Here is the cost structure:

• Existing surety relationships: Usually $0. Sureties provide bid bonds free to contractors in their bonding program because the revenue comes from performance/payment bonds.
• New applicants: Some sureties charge a flat fee ($100-$500) or a small percentage (1-3%) for first-time bid bonds while they evaluate the contractor.
• Instant-issue online bonds: For smaller projects, some online platforms provide bid bonds for a flat fee, but these may not cover large contract values.

The real cost of a bid bond is not the premium — it is the obligation. If you win and walk away, you owe the difference between your bid and the next lowest. On a $2 million project, that could be tens or hundreds of thousands of dollars.

Qualifying for a bid bond is really qualifying for the performance bond that follows. Sureties evaluate:

• Your bonding capacity: Can you handle the size of the project? If your largest completed project is $200K, a surety may hesitate on a $2M bid bond.
• Personal credit: Scores above 700 are preferred. The surety is really asking: if this person wins and defaults, can we recover from them?
• Financial statements: Working capital, net worth, and cash flow. For contract bonds, the surety typically wants to see working capital of at least 10% of your largest project.
• Experience: Track record of completing similar projects on time and on budget. The surety looks at your work history as evidence of capacity.
• Work on hand: How many active projects do you have? Surety companies monitor your total bonded work to make sure you are not overextended.

Having an established surety relationship makes bid bonds nearly automatic. If your surety has already approved your bonding program, they will issue bid bonds within hours as long as the project fits your capacity.