Bid Bonds for Construction Contractors That Win Projects
A bid bond tells the project owner that a qualified surety has vetted your company and stands behind your bid. Federal projects over $150,000, most public works, and an increasing number of private projects require bid bonds. We connect contractors with 30+ A-rated sureties for fast approvals and competitive capacity.
What Is a Bid Bond?
A bid bond is one of the three primary surety bonds in construction, alongside performance bonds and payment bonds. Understanding how bid bonds work is essential for any contractor pursuing competitive bid projects.
A Financial Guarantee to Project Owners
A bid bond is a surety bond submitted with a contractor's proposal on a construction project. It guarantees the project owner that the contractor will honor the bid price and sign the contract if awarded. If the winning bidder withdraws or fails to execute the contract, the surety pays the owner the difference between the winning bid and the next lowest qualified bid, up to the bond's penal sum.
Required on Most Public Works Projects
Federal projects over $150,000 require bid bonds under the Miller Act (40 USC 3131). Most states have 'Little Miller Acts' with varying thresholds. California requires bid bonds on public works over $5,000 (PCC 20170). Private owners increasingly require bid bonds on competitive bid projects over $500,000 to filter unqualified bidders and protect against bid shopping.
The Surety's Pre-Qualification of Your Company
Getting a bid bond is not just paperwork. The surety underwrites your company's financial strength, experience, and capacity before issuing the bond. A bid bond from an A-rated surety signals to project owners that a qualified financial institution has vetted your ability to perform the work. This pre-qualification is one reason owners require bonds in the first place.
Typical Bond Amounts and Cost
Bid bonds are typically set at 5% to 10% of the total bid amount. On a $2M project with a 10% bid bond requirement, the penal sum is $200,000. Most contractors with established surety relationships pay no premium for bid bonds. The surety issues them as part of the bonding relationship, anticipating the performance and payment bond premium if you win the project.
How to Get a Bid Bond
The bid bond process starts with establishing a surety relationship. Once your company is pre-qualified, individual bid bonds are issued quickly, often the same day you request them. Here is the step-by-step process.
- 1Submit your financial statements (balance sheet, income statement, WIP schedule) to a surety-focused broker
- 2The surety evaluates your financials, credit, experience, and current work backlog
- 3Once approved, the surety establishes your bonding capacity (single job and aggregate limits)
- 4When you identify a project requiring a bid bond, notify your broker with the bid details
- 5The surety issues the bid bond, typically within 24-48 hours for pre-qualified contractors
- 6Submit the bid bond with your proposal. If awarded, the bid bond transitions to performance and payment bonds
- 7If you are not awarded the project, the bid bond simply expires with no further obligation
Real-World Bid Bond Claim
Municipal Infrastructure Project
A general contractor submitted the low bid of $3.2M on a city water treatment plant expansion. The second lowest bid was $3.65M. After being awarded the project, the contractor discovered a $280,000 estimating error in their mechanical scope and attempted to withdraw the bid.
The city invoked the bid bond. The surety paid the city $450,000, representing the difference between the winning bid and the next qualified bidder. The surety then pursued the contractor for full reimbursement under the indemnity agreement. The contractor's personal assets were exposed because the principal had signed a personal indemnity.
Surety Payout: $450,000
- • Difference between bids: $450,000 (paid by surety to owner)
- • Surety recovery from contractor: $450,000 (indemnity claim)
- • Contractor's legal defense costs: $35,000
- • Reputation damage: loss of future bid eligibility with the municipality
The bid bond functioned exactly as designed, protecting the project owner. The contractor bore the full financial consequences of the withdrawn bid.
Related Bonding & Insurance
Performance Bonds
Guarantees project completion per contract terms
Payment Bonds
Guarantees subcontractor and supplier payment
California Bonds
CSLB license bonds, bid bonds & performance bonds
Nevada Bonds
NSCB license bonds and Las Vegas project bonding
Bonding Educational Guides
Bid Bond FAQ
What is a bid bond?
A bid bond is a surety bond that guarantees a contractor will honor their bid price and execute the contract if awarded the project. It protects the project owner from the financial loss that would occur if the winning bidder backs out. The bond amount is typically 5% to 10% of the bid. If the contractor fails to execute the contract, the surety pays the owner the difference between the winning bid and the next lowest bid, up to the bond's penal sum.
Do I need a bid bond for every construction job?
No. Bid bonds are required on most federal projects over $150,000, most state and local public works projects (thresholds vary by state), and some private projects where the owner wants competitive bid protections. Negotiated contracts, design-build projects, and smaller private jobs rarely require bid bonds. Your invitation to bid or project specifications will state whether a bid bond is required.
How much does a bid bond cost?
Most contractors with established surety relationships pay nothing for bid bonds. Sureties issue them at no charge because they anticipate earning the performance and payment bond premium if you win the project. Contractors without an existing surety relationship, or those with weaker financials, may pay a small fee ranging from $100 to $500 per bid bond. This is one reason establishing a surety relationship before you need bonds is important.
How fast can I get a bid bond?
If you have an existing surety relationship and established bonding capacity, bid bonds can be issued same-day, often within hours. If you are establishing a new surety relationship, initial underwriting takes 3 to 10 business days depending on the complexity of your financials. Once your program is set up, future bid bonds are routine. We recommend getting pre-qualified with a surety well before your first bid deadline.
What happens if I win the bid but cannot get a performance bond?
This is one of the most damaging situations a contractor can face. If you win a project and cannot produce the required performance bond, the bid bond can be called. The surety pays the project owner the difference between your bid and the next qualified bid. You are then obligated to reimburse the surety in full. Additionally, your reputation and future bonding capacity will be damaged. This is why sureties pre-qualify contractors before issuing bid bonds.
Can new contractors get bid bonds?
Yes, but with limitations. New contractors typically start with smaller bonding capacity, often $100,000 to $500,000 per job. The surety evaluates your personal credit, financial resources, industry experience (even if from previous employment), and the specific project. Some surety programs specialize in emerging contractors. As you successfully complete bonded projects, your capacity grows. Starting with smaller bonded jobs and building a track record is the proven path.
What is the difference between a bid bond and a performance bond?
A bid bond guarantees you will sign the contract if awarded. A performance bond guarantees you will complete the project per the contract terms. The bid bond protects the owner during the bidding phase. The performance bond protects the owner during construction. Bid bonds are typically 5% to 10% of the bid amount. Performance bonds are typically 100% of the contract value. When you win a project, the bid bond transitions to a performance bond.
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Whether you need your first bid bond or you are expanding your bonding capacity for larger projects, our surety specialists can help. Pre-qualification available. Same-day bonds for established accounts.