Bid Bond
A surety bond submitted with a bid that guarantees the contractor will sign the contract at the bid price if awarded.
Definition
A bid bond is a surety bond that the contractor submits with their bid as a guarantee that, if awarded, they will execute the contract at the bid price and post the required performance and payment bonds. If the awarded contractor refuses to sign, the surety pays the owner the bond amount as damages — typically the difference between the awarded bid and the next-lowest qualifying bid, up to the bond face value.
Bid bonds are issued by surety companies on behalf of the contractor and are most often required on public-sector work and large private projects.
How bid bond is used in estimating
Bid bonds are a small line item in the estimate but a critical part of bid responsiveness. The contractor secures the bond from their surety, includes the bond document with the bid submission, and the surety company is on the hook to the owner if the contractor walks away from the award. The cost of the bid bond itself is usually nominal — many sureties issue bid bonds at no charge as part of the underwriting relationship for performance and payment bonds.
For estimators, the bid bond requirement is one of the first items checked in the bid documents. The required bond amount (commonly 5 to 10 percent of the bid price) and the surety qualifications (Treasury-listed, AM Best rating) must be confirmed before the contractor commits to bidding. A contractor who cannot bond a project at the required amount cannot bid responsively, regardless of price competitiveness.
When bid bonds are required
Bid bonds are typically required on federal projects (Miller Act), state and municipal projects (Little Miller Acts), and on most large private commercial work. On smaller private jobs they are often waived in favor of a simple bid deposit or no security at all. Always confirm the bid security requirement in the bid documents before assuming a bond is needed, and call your surety as soon as you decide to pursue a bonded job.
Frequently asked questions
Q.How much is a bid bond?
The face value is typically 5 to 10 percent of the bid amount. The premium charged to the contractor is usually nominal and is often included in the cost of the eventual performance and payment bonds.
Q.Who issues a bid bond?
A licensed surety company, typically the same surety that will issue the contractor’s performance and payment bonds if the contract is awarded.
Q.What happens if the contractor does not sign the contract?
The owner claims the bid bond. The surety pays the owner the bond amount (typically the cost difference to the next bidder), and the contractor reimburses the surety.
Q.Are bid bonds the same as performance bonds?
No. A bid bond guarantees that the contractor will sign the contract if awarded. A performance bond guarantees that the contractor will complete the contracted work. They are issued at different stages.
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