Bid Bond
Also known as: bid security
A bid bond is a surety guarantee, usually five to ten percent of the bid amount, that a contractor who is awarded a project will enter into the contract and provide the required performance and payment bonds. If they refuse, the bond compensates the owner for the cost of going to the next bidder.
Bid bonds are standard on public work and common on larger private projects. Plenty of smaller private commercial jobs require none at all.
The three bonds you'll hear about
| Bond | When | What it guarantees |
|---|---|---|
| Bid bond | Submitted with the bid | That you'll sign the contract if awarded |
| Performance bond | At contract execution | That the work will be completed per contract |
| Payment bond | At contract execution | That your suppliers and labour will be paid |
Obtaining bonds requires a relationship with a surety, which underwrites your company's financial strength, experience, and management much as a lender would. Establishing that relationship early is worthwhile even before you need a specific bond, because bonding capacity is often requested as part of a prequalification packet regardless.
Related terms
- PrequalificationPrequalification is a general contractor's vetting process that a subcontractor must pass before receiving invitations to bid. It typically reviews insurance coverage, financial capacity, bonding, safety record, licensing, and references from comparable completed projects.
- Invitation to BidAn invitation to bid (ITB) is a general contractor asking a subcontractor to price a defined scope of work on a specific project. It names the project and location, states a bid due date, and provides access to drawings, specifications, and any addenda issued.
- Bid TabA bid tab is the spreadsheet a general contractor's estimator uses to compare every subcontractor bid received for one trade package, line by line, so the numbers can be levelled against each other and the lowest responsible bid identified.