Bid bonds aren't the flashiest part of construction, but they can make or break your ability to win work. If you're bidding on public projects or any job where the owner needs assurance that you can deliver, a bid bond is your first line of credibility.
This guide covers the ins and outs of bid bonds, including what they are, why owners require them, and how they work.
Table of contents:
Bid bonds in construction are a type of surety bond that serves as a guarantee to the project owner (the obligee) that a contractor (the principal) who submits a bid will:
Bid bonds protect the owner financially in case the contractor wins the bid but backs out or can't provide the required bonds.
Requiring bid bonds is in the best interest of the construction project owners and contractors. Here's why they matter.
Bid bonds give owners confidence that the contractor they select can actually deliver on their bid. When a contractor includes a bid bond, it signals that a surety has already reviewed their financials and believes they can take on the job.
It also prevents lowball bids from contractors who hope to renegotiate later.
Additionally, a bid bond protects owners from the cost and delays that come from a contractor backing out. If the selected bidder fails to sign the contract or provide required bonds, the bid bond can be used to offset the owner’s resulting costs. With a bid bond in place, owners reduce risk and keep the project moving forward.
Having a bid bond shows that a surety has vetted the contractor and can take on the work without issue. This builds credibility with owners who want partners they can count on. A solid bid bond also helps contractors stand out in a crowded field, especially when competing for larger or more complex jobs. When you show up prequalified, it sends a message that you take the project seriously and have the financial stability to follow through.
Public agencies often require bid bonds to safeguard public funds. Cities, states, and federal agencies want to make sure that contractors bidding on taxpayer-funded work are financially sound.
A bid bond also creates that safety net for owners. If a general contractor walks away after winning the bid, the surety covers the gap so the project doesn't stall and taxpayers aren't left paying more.
Bid bonds help ensure that contractors stand behind the numbers they submit, so that owners aren't left hanging if the winning bid falls through.
Here's how they work:
When submitting a construction proposal, the contractor includes a bid bond from a surety that has already reviewed their financials and capacity. This gives the owner confidence that the bidder can actually take on the job at the price quoted. It also filters out contractors who may try to win work by underbidding without the financial backing to follow through. In short, the bid bond helps owners trust the bids they receive and reduce surprises once the project moves forward.
The project owner defines the bond amount, usually as a percentage of the total bid. This is typically in the 5% to 10% range, though it can go up to 20% for federally funded projects.
This percentage becomes the financial cushion if the winning contractor backs out. As such, it gives owners the confidence that they won't get stuck covering the cost of rebidding or selecting the next lowest bidder.
If the winning contractor doesn't sign the contract or can't provide the required performance and payment bonds, the surety steps in.
In these instances, the surety may reimburse the owner for the difference between the winning bid and the next qualified bid, up to the bond amount. The surety company will then seek reimbursement from the contractor under the indemnity agreement.
Every bid bond involves three key players:
Bid bonds are just one piece of the puzzle. There are two other types of contract bonds designed to protect owners and subs.
A performance bond is a surety bond that guarantees the contractor will finish the project according to the contract. If the contractor fails to do so (i.e., they walk off the job, go bankrupt, or can't meet their obligations), the surety may:
In short, a performance bond protects the owner from contractor non-performance.
A payment bond guarantees that the contractor will pay subcontractors, suppliers, and laborers for work and materials on the project.
If the contractor doesn't pay, the subcontractors and suppliers can make a claim directly with the surety. The surety must ensure they're paid (up to the bond amount). This is especially important on public projects, where mechanics liens generally aren’t available against public property.
In other words, a payment bond protects subcontractors and suppliers and prevents unpaid parties from filing liens on the project.
Most contractors bidding on public work must meet specific requirements before submitting a proposal with a bid bond. While the details vary by jurisdiction, most contractors can expect the following.
Cities, counties, states, and federal agencies usually require a bid bond with every proposal. It keeps the construction bidding process accountable and ensures the contractor is serious about taking on the work. Without a bond, the proposal typically won't be accepted. Many private owners follow the same standard, especially for large or complex jobs.
Owners decide how much coverage they need based on the scope, budget, and risk of the job.
Some agencies require a flat percentage across all projects, while others adjust the amount depending on the contract value. For example, a routine facility upgrade could carry a 5% bond requirement, while a complex infrastructure project might require 10% or more.
Contractors should always confirm the exact requirements before submitting a bid.
Before a surety issues a bond, it reviews the contractor's financial health and past performance. This process often includes credit checks, financial statements, work history, and an evaluation of current workload.
Sureties do this because they need to know the contractor can handle the project without stretching their resources too thin. Passing underwriting shows the contractor is capable, reliable, and ready to perform the work if selected.
Sureties don't issue bid bonds without doing their homework. These are some of the factors they look into before approving a bond.
Good credit definitely helps, but it isn't the only thing a surety cares about. Think of credit as one piece of the larger picture.
Generally speaking, sureties look for signs that a contractor manages money well and has a history of meeting obligations. A contractor with average credit can still qualify if the rest of their business looks strong.
On the flip side, a high credit score won't outweigh weak financials or an overloaded project pipeline.
Most sureties want to see that the contractor has handled similar work before, and they can take on the projects they're bidding on. So, they may review:
This usually includes a review of financial statements, work-in-progress reports, and evidence that the contractor has enough cash flow to take on the new project.
For emerging contractors, qualifying for their first few bonds can feel tough. That's where programs like FastBond come in.
These programs help contractors with limited bonding history build credibility and access the bonding they need to grow. They're designed to be more flexible than traditional underwriting, which gives newer firms a path to take on public work and compete for larger opportunities.
Bid bonds and performance bonds work together, but they step in at different points in the project.
A bid bond comes into play before any work starts. Contractors submit it with their proposal to show they stand behind their bid. If the contractor wins but decides not to sign the contract or can't secure the required performance and payment bonds, the surety will cover the owner's financial loss up to the bond amount.
Once the contractor wins the job and signs the contract, the performance bond becomes the main protection.
It guarantees the contractor will complete the project according to the contract. If they can't meet their obligations, the surety comes in to get the work finished. That might mean financing the contractor, hiring a replacement, or covering the completion costs up to the bond limit.
If you're a contractor looking to secure a bid bond, you'll need to take the following steps.
Start by finding a surety provider that understands construction and your target market (public vs. Private, project size, region). Many contractors work through agents who specialize in contract bonds because they can guide you through requirements and match you with the right surety. A reputable provider makes the process smoother and helps you avoid delays during bidding.
As with any bond process, sureties will need to have a clear understanding of your business. And to do that, they'll ask for paperwork, which would include:
In some cases, you may need to provide work-in-progress schedules or bank references. Make sure you have everything ready upfront to keep the process smooth.
Most sureties let you apply online, which makes the process convenient. The application collects basic information about your business, ownership, and the project. For larger jobs, the surety may ask for more detailed financials.
Once your application is in, the surety reviews your credit, experience, and financial stability. This review is the biggest part of the process, but it moves quickly if your documentation is solid.
If approved, you'll pay the premium and receive the bond to include with your bid. Costs vary based on the bond amount, project type, and your risk profile. Once the surety issues the bond, you're ready to submit a complete, compliant bid.
Securing bid bonds becomes a simple process if you stay organized and treat bonding as part of your preconstruction workflow. Consider the following best practices.
Loop in your surety as soon as you know you're planning to bid. Starting the bid bonding process early gives you time to gather documents and prepare, so you don't have to scramble at the end. This is especially important for larger projects or bids with unique requirements.
Sureties rely on accurate financials to understand how your business is performing. So, see to it that you have clean books and up-to-date statements, so it's easy to evaluate how your business is doing.
Every project owner sets their own rules, so take the time to review the bonding instructions before you start estimating. Look at the required bond amount (percentage or cap), deadlines, and any specific forms the owner wants.
That way, you get to familiarize yourself with the requirements up front, you avoid surprises, and submit a complete bid the first time.
Bid bonds may not get as much attention as estimating or project management, but they play a significant role in winning work and protecting everyone involved. For owners, they reduce the risk of bid failure and project budgets; for contractors, they’re a credibility signal and a gateway into larger public and private opportunities. When you understand how they operate and what sureties expect, the bonding process becomes simple and predictable. Treat bid bonds as part of your standard preconstruction routine and you'll be ready to chase bigger opportunities with confidence.
