What is Bid Bonds?
Bid bonds are a type of contract surety that guarantees a contractor will enter into a contract and provide required performance and payment bonds if awarded the job. They act as a financial assurance for owners or project sponsors that bidders are serious and have the initial qualifications to begin a public or private construction project. Learn more about Bid and Performance Bonds for additional context on how these guarantees connect to later performance coverage.
Who needs it
Owners, general contractors, and public agencies commonly require bid bonds from bidders. Typical buyers include contractors, subcontractors and firms bidding on municipal, commercial, or infrastructure projects. Smaller specialty contractors may seek a Subcontractor Bid and Performance Bond program when working under a prime contractor to meet contractual and prequalification requirements.
What it typically covers
Bid bonds cover the bid guarantee — usually a percentage of the bid amount — and compensate the project owner for the cost difference if the winning bidder refuses to sign the contract or provide required performance bonds. They are closely related to other credit supports like performance and payment bonds used to protect owners from contractor default and subcontractor non-payment; see information on Performance and Payment Bonds to understand the broader bond suite. Commonly, bid bonds do not pay for construction defects or ongoing project liabilities.
Common exclusions or limitations
Bid bonds do not substitute for performance or payment bonds and typically exclude coverage for project defects, continued delays, or warranties. They usually limit recovery to the difference between the bidder’s offer and the next compliant bid, up to the bond penalty. Underwriting may exclude bidders without sufficient financial records, experience, or licensing.
Factors that influence cost
Cost depends on the bidder’s financial strength, project size, contract type, past performance, and the surety’s underwriting standards. Other factors include the owner’s bonding requirements, project complexity, and industry risk factors such as supply chain disruption or specialized equipment needs. Prequalification, timely financial statements, and a clear work history can lower premium rates.
Proof of insurance & compliance
Contract administrators typically require a copy of the bid bond form as part of the bid package and proof of subsequent performance/payment bonds after award. Bonds are issued on surety forms naming the obligee (owner) and the penal sum. Keep organized records of license numbers, financial statements, and bond forms to simplify compliance with contract and permit requirements.
How to get a quote
Request a quote by providing basic company information, recent financials, project details, and past project references. If you prefer assisted help, talk to your agent who can guide documentation and underwriting questions for bond issuance.
Frequently Asked Questions
What is the usual bond amount for a bid bond?
Owners commonly require a bid bond equal to 5%–10% of the bid amount, but requirements vary by project and owner.
How long is a bid bond valid?
Validity periods are set in the bond form and contract documents; typical durations run from the bid submission until contract award or a specified number of days afterward.
Can a subcontractor obtain a bid bond?
Yes. Subcontractors often obtain bid bonds when bidding tiers require them or to demonstrate financial responsibility; programs exist specifically for subcontractor bonding.
Still have questions? Talk to a local insurance expert.