A bid bond protects the owner during bidding. If the low bidder is awarded the job and then refuses to sign, or can’t produce the required performance and payment bonds, the owner can recover from the surety. The usual measure is the difference between the defaulting bid and the next acceptable bid, capped at the bond amount. Bid bonds are commonly 5% to 10% of the bid; federal work generally requires bid security of 20% of the bid price, capped at $3 million.
Many sureties issue bid bonds for little or no premium because they’re underwriting the final bonds at the same time. Issuing the bid bond is effectively a signal that the surety expects to write the performance and payment bonds if you win.
Why it matters
Bid bonds keep bidders honest about pricing and bondability. For contractors, every bid bond request draws on the surety relationship. A surety may decline to support a bid that’s far outside your normal size or type of work.
Worked example
Illustrative: on a $12,000,000 bid with a 10% bid bond, the bond is $1,200,000. If the low bidder walks away and the next bid is $12,450,000, the owner’s claim is $450,000, the difference, which is less than the bond cap.
Common mistakes
- Mistakes in the bid that are too large to honor, with no clear basis for bid withdrawal.
- Requesting the bid bond the day before bid day.
- Bidding work the surety hasn’t agreed to support with final bonds.
How os.construction handles it
We’re building bid and backlog tracking so bonded bids sit next to current backlog and WIP, which is what your surety looks at. It’s in development.