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Estimating & Biddingaka: bid guarantee

Bid Bond

In Plain English

A guarantee that if a contractor wins the bid, they will actually sign the contract at the price they offered.

Definition

A bid bond is a surety instrument that guarantees a bidder will enter into a contract at the bid price if awarded. If the winning bidder fails to execute the contract, the surety pays the owner the difference between that bid and the next acceptable bid. Bid bonds are typically required on public projects and large private projects.

Why It Matters in Bidding

A bid bond protects the owner from a low bidder walking away after award, and its required percentage, often a set share of the bid amount, is a real qualification hurdle a contractor must meet to participate. Because the surety underwrites the bond, a contractor's bonding capacity effectively caps the size and number of projects it can bid at once, making the bond a strategic constraint in pursuit decisions. On public work, submitting a bid without the required bid security usually renders the bid non-responsive and disqualified.

Example

The county required a bid bond equal to 5 percent of the bid amount, so the contractor secured the bond from its surety before submission to avoid having its courthouse bid rejected as non-responsive.

Related Terms

Bid SecurityBid GuaranteeSuretyBid

Frequently Asked Questions

Sureties typically issue bid bonds at little or no direct premium, since the surety's revenue comes from the performance and payment bonds required after award. The bid bond's value is stated as a percentage of the bid, commonly 5 to 10 percent, representing the surety's maximum exposure rather than a fee paid upfront.
The surety becomes liable up to the bond amount, generally covering the owner's added cost of re-awarding to the next acceptable bidder, so the owner is not harmed by the default. The surety then seeks reimbursement from the contractor, and the default damages the contractor's standing with its surety and bonding capacity.
A bid bond guarantees that a winning bidder will enter the contract at its bid price. A performance bond, issued after the contract is signed, guarantees the contractor will complete the work per the contract terms. The bid bond covers the award stage; the performance bond covers actual construction, and a payment bond protects subs and suppliers.

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