Bid Bond

A bid bond is a financial guarantee, issued by a licensed surety company, submitted alongside a construction bid to assure the federal government that the bidder will enter into a contract and furnish the required performance and payment bonds if its bid is accepted.

What is a Bid Bond?

FAR 28.101 requires bid bonds for federal construction contracts exceeding $150,000 procured through sealed bidding. The bid bond is typically set at 20% of the bid price and must be executed by an approved surety listed in the U.S. Treasury's Circular 570 publication.

The bid bond protects the government against the cost and disruption that occur when a low bidder refuses the award or fails to provide the required performance bond and payment bond within the specified time after award. If the winning bidder withdraws or cannot execute the contract, the government may claim damages from the surety, typically the difference between the winning bid and the next lowest responsive bid, up to the bond amount.

Obtaining bid bond capacity requires a pre-existing surety relationship. The surety evaluates the contractor's financial strength, experience, credit history, and management capacity before issuing bid bonds. A surety's willingness to provide bonding, and the aggregate bonding capacity it extends, is one of the most important indicators of a construction firm's financial health and industry standing.

For small businesses, accessing bid bond capacity can be an entry barrier to federal construction markets. The SBA's Surety Bond Guarantee Program addresses this by guaranteeing up to 90% of bid and performance bonds issued by sureties on behalf of small contractors who cannot otherwise obtain bonding, enabling SBA-approved sureties to extend coverage to firms with limited bonding history.

Why Bid Bonds matter for government contractors

Bid bond capacity determines which federal construction opportunities a firm can pursue. A contractor without an active surety relationship and established bonding capacity cannot bid on most federal construction contracts above $150,000, making surety development a prerequisite for serious federal construction market participation.

Example

A general contractor submits a sealed bid of $8.5M on a Corps of Engineers facility renovation. It includes a bid bond equal to 20% of the bid ($1.7M) from its surety. It is the low bidder. If it declines the award or cannot furnish performance and payment bonds within 10 days, the Corps can claim up to $1.7M from the surety, equal to the difference between its $8.5M bid and the next lowest responsive bid of $9.2M ($700K), well within the bond amount.

Frequently Asked Questions

Is a bid bond the same as a cashier's check or certified check?

No, though some small procurements accept a cashier's check or certified check in lieu of a bid bond. For procurements above $150,000, FAR 28.101 specifically requires a surety bid bond from a Treasury Circular 570-approved surety, not a cash equivalent.

What happens to the bid bond if I don't win the contract?

If you are not the low bidder or if you are not awarded the contract, your bid bond is returned and the surety has no further obligation. Bid bonds are conditional, they only become callable if the winning bidder refuses the award or fails to perform the required post-award bonding steps.

How long does it take to obtain bid bond capacity?

A new surety relationship may take 30 to 60 days to establish, as the surety conducts a thorough financial and operational review. Established contractors with existing surety relationships can typically obtain bid bonds within 24 to 48 hours of requesting them for specific procurements.

Can a joint venture obtain a bid bond?

Yes. JV bid bonds are typically issued in the name of the JV entity. The surety evaluates the combined financial strength of the JV members. Both members typically must execute the bid bond application and agree to joint and several liability.