Construction bid bonds are a type of surety bond used in the bidding phase of construction projects. They serve as a financial guarantee that a contractor:

1. Will honor the terms of their bid, and
2. Will enter into a contract and provide the required performance and payment bonds if awarded the project.

• Protect project owners: If a contractor backs out after winning the bid or can't provide the necessary follow-up bonds, the project owner can file a claim on the bid bond to recover the difference between the defaulted bid and the next lowest bidder.
• Discourage unqualified bids: Because bid bonds are backed by a surety company, they help ensure only financially stable and serious contractors submit bids.
• Build trust: They signal to the project owner that the contractor is capable and credible. 

Bid bonds are typically required on public projects (government-funded) and increasingly on private jobs, especially those of higher value.

 A bid bond is typically required for contractors bidding on public construction projects (federal, state, or municipal) and sometimes for large private projects. Project owners—especially government agencies—require them to ensure that bidders are financially stable and committed to honoring their bids. So, any contractor pursuing these types of jobs will likely need a bid bond to be considered a serious and eligible contender.

 A bid bond works as a financial guarantee between three parties: the contractor (principal), the project owner (obligee), and the surety company. When a contractor submits a bid with a bid bond, they promise to accept the project if selected and provide performance and payment bonds. If the contractor backs out or fails to follow through, the project owner can file a claim against the bond. The surety may then cover the difference in cost to hire the next lowest bidder, up to the bond’s limit—typically a percentage of the bid amount. This protects the project owner from financial loss due to unreliable bidders.

The bid bond claim process begins when a contractor who won a bid fails to sign the contract or doesn’t provide the required performance and payment bonds. Here's how it works, step-by-step:

1. The project owner (obligee) files a claim with the surety company that issued the bid bond.
2. The surety conducts an investigation to verify the claim’s validity.
3. If the claim is valid, the surety may:
   • Pay the difference between the contractor’s bid and the next lowest bid, or
   • Compensate the project owner up to the bond amount (usually 5–20% of the bid).
4. The contractor is then financially responsible to repay the surety for any losses.

This process protects project owners from financial harm if a contractor fails to follow through after winning a bid.

Bid Bonds are free; however, if performance & payment bonds are required, you will want to include the cost of the performance and payment bonds to include in your bid estimate. Your P&P rate will depend on what you qualify for..we can help you get prequalified!