A bid and performance bond is a type of surety arrangement that protects project owners against contractor default. The bid bond guarantees that a bidder will honor their proposal and, if awarded the contract, will provide the required performance and payment bonds. The performance portion ensures the contractor completes the work according to the contract terms. For a deeper explanation of performance bonds, see What is a Performance Bond?.
Who needs it
Owners and public agencies commonly require these bonds on construction projects to reduce financial risk. General contractors, subcontractors, developers, and specialty firms often obtain bid and performance bonds as part of bidding and contract compliance. Subcontractors working on larger contracts may look into specific options; more information is available on the Subcontractor Bid and Performance Bond page.
What it typically covers
- Failure of the awarded contractor to enter the contract at the bid price (bid bond).
- Contractor default or failure to complete the project according to specifications (performance bond).
- Sometimes includes payment protection to subcontractors and suppliers when paired with a payment bond.
Many owners will ask for both performance and payment guarantees; see the general Bid and Performance Bonds guidance for typical program features.
Common exclusions or limitations
Bonds do not function exactly like insurance policies. Common limitations include exclusions for design defects caused by the owner, changes in scope not covered by the original contract, or willful misconduct by the principal. The surety’s obligation is to the obligee under the bond terms, and remedies can vary depending on contract language and underwriting conditions.
Factors that influence cost
Underwriting factors used to set bond fees include:
- Contract size and duration
- Contractor financial strength and credit history
- Prior project experience and claims history
- Project complexity and identified job-site hazards
Risk management practices, such as strong project controls and subcontractor vetting, can improve terms. Collateral or indemnity may be required in higher-risk situations.
Proof of insurance & compliance
Obligees typically request original bond forms, a power of attorney for the surety, and any supporting documents needed to demonstrate compliance. Requirements vary by owner and jurisdiction, so review contract specifications carefully and keep bond paperwork available for project closeout and audits.
How to get a quote
To get a competitive bond estimate, gather your contract, financial statements, and project schedule, then talk to your agent. If you need a fast online start, talk to your agent through our quote portal and an agent can advise on bonding options and next steps.
Risk scenario: on a medium-scale renovation, a subcontractor’s non-performance could trigger a claim under the performance bond that the general contractor may pursue against the surety.
Frequently Asked Questions
Do bid bonds cost the same as performance bonds?
No. Bid bonds are usually a smaller percentage of the contract value and are intended to guarantee bidding honesty, while performance bonds are underwritten based on the full scope and risk of performance.
Can a subcontractor get bonded if they have limited credit history?
Possibly. Some programs exist for subcontractors, but the surety will review financials, references, and project experience; collateral or smaller bond limits may be required.
Who pays for the bond—contractor or owner?
Typically the contractor purchases and pays the premium for the bond, but contract terms determine responsibility and reimbursement clauses, which vary by project.
Still have questions? Talk to a local insurance expert.