What is Bid Bond?
A bid bond is a financial guarantee that a contractor will honor their bid and sign the contract if awarded the project. Learn how bid bonds work, why they're required, and their role in construction and government contracting.
What Is a Bid Bond?
A bid bond is a financial guarantee — issued by a surety company on behalf of a contractor — that the contractor will honor their bid if awarded the project. Specifically, it guarantees that: 1. The contractor will sign the contract at the bid price 2. The contractor will provide the required performance bond and payment bond If a contractor wins a bid and then walks away or refuses to sign at the quoted price, the project owner can make a claim against the bid bond. Think of it as a "good faith deposit" — but it's not your money, it's the surety company's money on the line, guaranteeing you're serious.
How Bid Bonds Work
The Three Parties | Party | Role | |---|---| | Oblilee | The contractor (you) — bidding on the project | | Obligee | The project owner — requiring the bond | | Surety | The surety company — guaranteeing the contractor's bid | The Process 1. Contractor applies for bid bond — Surety evaluates your credit, financial strength, and track record 2. Bid bond issued — Typically 5-10% of the bid amount; you pay a small premium (0.5-1%) 3. Contractor submits bid — With the bid bond attached 4. Contractor wins bid — Must sign contract and provide performance bond 5. Contractor declines to sign — Project owner makes claim against bid bond Bid Bond Amount Bid bonds are typically 5-10% of the contract value, but never more than the penal sum stated in the bond: | Project Value | Typical Bid Bond | |---|---| | $100,000 | $5,000-$10,000 | | $500,000 | $25,000-$50,000 | | $1,000,000 | $50,000-$100,000 | | $5,000,000 | $250,000-$500,000 |
Bid Bond vs. Performance Bond
| | Bid Bond | Performance Bond | |---|---|---| | Purpose | Guarantees you'll sign if awarded | Guarantees you'll complete the work | | When issued | With your bid | After contract signing | | Protects owner against | Walking away after winning | Poor performance or abandonment | | Typical amount | 5-10% of contract value | 5-15% of contract value | | When called | If winner refuses to sign | If contractor fails during project |
Bid Bond Claims: What Happens If You Walk
If you win a bid and then refuse to sign the contract (without a legitimate reason), the project owner can make a claim against your bid bond. The surety pays the owner up to the bond amount, then comes after you to recover those funds. Legitimate reasons to walk after winning: - The owner materially changes the contract after your bid - You discover the project is illegal or impossible - The owner's requirements in the final contract differ materially from the bid documents Not legitimate reasons: - You found a better opportunity - You underestimated the job - You changed your mind
Getting a Bid Bond
To obtain a bid bond, you'll need: 1. Good credit — Sureties evaluate personal and business credit scores 2. Financial statements — Balance sheet, income statement, cash flow 3. Track record — Experience in similar projects 4. Working capital — The surety needs to know you can complete the work 5. Application — Most sureties use the SF-24 form for bid bonds Sureties you might use: - Big name sureties (Travelers, Liberty Mutual, Zurich) - Insurance companies with surety divisions - Local bonding agents
When Bid Bonds Are Required
| Project Type | Bid Bond Required? | |---|---| | Federal government contracts | Almost always — by law (Miller Act) | | State/local government | Usually required | | Large commercial construction | Often required | | Private projects under $100K | Rarely required | | Freelance/consulting services | Almost never | For most freelancers in service industries, bid bonds come up primarily when working with government agencies or on large-scale projects.
The Bottom Line
Bid bonds are serious financial instruments — they commit the surety's credit to your bid. Don't submit a bid with a bid bond unless you fully intend to sign the contract at your quoted price if awarded. For most freelance service work, bid bonds aren't relevant; focus on fixed-price or T&M contracts without bonding requirements. (Understand contract types →) (Learn about performance bonds →) (Explore government contracting →) Key Takeaways: 1. A bid bond guarantees you'll sign the contract at your quoted price if awarded 2. It's issued by a surety company — you pay a small premium (0.5-1% of bid) 3. If you win and walk away without cause, the owner claims against the bond 4. Bid bonds are required on most government and large commercial projects 5. Never bid with a bond unless you fully intend to perform Get bonded and ready to bid — Try Eonebill Free Eonebill helps you manage project bidding and contracts — so you can take on larger projects with confidence. View Pricing → | Glossary Home → | Home →