What is a bid bond and when do I need one?

A bid bond is one of three surety bonds involved in construction contracting (the others are the performance bond and the payment bond). It is a guarantee from a surety company that if you are awarded the contract based on your bid, you will actually sign the contract and provide the required performance and payment bonds. If you renege after being awarded, the surety pays the bond amount to the agency to compensate for the additional cost of awarding to the next-lowest bidder.

The Miller Act (federal) and Little Miller Acts (state versions) generally require bid bonds on public works contracts above certain thresholds — $150,000 for federal construction, varying by state (often $100,000-$300,000) for state and local. Below-threshold contracts may accept alternative bid guarantees like certified checks or letters of credit. The bond amount is usually 5-20% of the bid — 5% is the federal standard, 10-20% common at state/local level. The bond premium (what the surety charges you) is typically 1-3% of the bond amount, though on small bonds the minimum premium often applies.

Getting a bid bond requires a relationship with a surety company. The surety underwriting process examines your financial statements, current work-on-hand, character references from prior owners/agencies, and available line of credit. New contractors without a track record often need personal guarantees from the owners and may only qualify for bonds up to 3-5x their working capital. Established contractors can carry bonding capacity in the millions or tens of millions.

Alternatives exist for contractors who cannot get traditional bonding. The SBA Surety Bond Guarantee Program guarantees bonds up to $9 million (up to $14 million on federal contracts) for small contractors who cannot obtain bonds through normal channels. Bond2Guarantee and other broker programs exist to help newer contractors build bonding history. Some states also have small-project set-asides that waive bonding for very small dollar amounts to encourage new entrants.

If you plan to bid on construction, get pre-qualified with a surety BEFORE you start bidding — you cannot get a bond in 48 hours once you find an opportunity. Establish the relationship first, so bonding availability is not the constraint that makes you miss deadlines.