Bid Bond vs Performance Bond for Contractors
Bid bonds and performance bonds serve different purposes at different stages of a construction project. Understanding how they work together is essential for any contractor pursuing bonded work. This guide breaks down the differences in plain language.
Side-by-Side Comparison
How bid bonds and performance bonds compare across every dimension that matters to contractors.
| Bid Bond | Performance Bond | |
|---|---|---|
| Purpose | Guarantees you will sign the contract if awarded | Guarantees you will complete the project per contract terms |
| Who It Protects | The project owner during the bidding phase | The project owner during construction |
| When It Applies | From bid submission through contract execution | From contract execution through project completion |
| Typical Amount | 5% to 10% of bid amount | 100% of contract value |
| Premium Cost | Usually $0 for pre-qualified contractors | 1% to 3% of contract value (with payment bond) |
| What Triggers a Claim | Winning bidder refuses to sign contract or provide performance bond | Contractor defaults, abandons project, or fails to meet specifications |
| Surety's Response | Pays owner the difference between winning bid and next qualified bid | Finances completion, hires replacement contractor, or pays owner |
| Duration | Expires when contract is executed or bid period ends | Remains active until project is completed and accepted |
| Contractor Liability | Must reimburse surety if bond is called | Must reimburse surety for all costs under indemnity agreement |
Key Takeaways
- Bid bonds and performance bonds are sequential. The bid bond comes first. If you win, it transitions to a performance bond.
- A bid bond is relatively low-risk for the surety because it only covers the spread between bids. A performance bond covers the entire contract.
- Both bonds require the contractor to reimburse the surety if a claim is paid. Neither is free money.
- The surety underwrites your company once. If you qualify for a bid bond, you generally qualify for the performance bond on the same project.
- Contractors who obtain bid bonds without the financial capacity to secure the performance bond risk catastrophic financial exposure.
- On most public works, you need both. The bid bond gets you in the door. The performance bond keeps you on the job.
Learn More About Each Bond Type
Bid Bonds
Complete guide to bid bonds for contractors
Performance Bonds
Everything contractors need to know
Payment Bonds
Subcontractor and supplier protection
Related Educational Guides
Bond Requirements
What bonds are required by project type
How Bonding Works
Step-by-step bonding process
Public vs Private
Bonding by project ownership
State Contractor Bonds
Bid Bond vs Performance Bond FAQ
Do I always need both a bid bond and a performance bond?
On most public works projects, yes. The bid bond is required with your proposal, and the performance bond is required before contract execution. Some private projects require only a performance bond without a bid bond, particularly on negotiated (non-competitive bid) contracts. The project specifications will clearly state which bonds are required.
If I have a bid bond, am I automatically approved for the performance bond?
Generally, yes, for the specific project the bid bond was issued for. When the surety issues a bid bond, they have already evaluated the project and determined your company can handle it. However, if your financial situation changes significantly between bidding and award, or if you take on substantial additional work, the surety may need to re-evaluate. This is rare but does happen.
Which bond costs more?
The performance bond is significantly more expensive because it covers a much larger exposure. Bid bonds are typically free for pre-qualified contractors. Performance bonds (usually packaged with payment bonds) cost 1% to 3% of the contract value. On a $5M project, expect to pay $50,000 to $150,000 for the performance and payment bond package.
Can I get a bid bond from one surety and a performance bond from another?
Technically possible but extremely unusual. The surety that issues your bid bond expects to write the performance bond if you win. Switching sureties between bidding and award creates complications and delays. Most project owners would view this negatively. Establish a single strong surety relationship and keep both bonds with the same company.
What happens to the bid bond after I win and sign the contract?
The bid bond is replaced by the performance bond. Once you execute the contract and deliver the required performance and payment bonds, the bid bond's obligation is satisfied and it effectively expires. If you do not win the project, the bid bond simply expires at the end of the bid validity period with no further obligation.
Need Bid Bonds or Performance Bonds? We Handle Both.
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