Bid Bond Guide
Why do you need a bid bond?
You are required to get a surety bond for bidding on (mostly public) bonded projects to protect the owner. The bid bond is a guarantee to the owner that you can do the job for your bid amount and a performance bond will be provided to back your work.
If you are the winning bidder and back out of the job or cannot post a performance bond, a claim can be made against the bid bond. That is why bonding companies underwrite the bid and performance bond at the time of the bid request.
Surety Bonds do not protect you
The bond is a form of insurance for your clients, which is why many businesses proudly list that they are bonded on their marketing material. However, you will be required to reimburse the bonding company should a claim be paid out.
Fidelity Bonds protect your business
You can protect your business from employee theft and fraud by purchasing a fidelity bond. You can read more in our fidelity bond section.
You can apply on our website and find out if you qualify, but not everyone does. Approvals for smaller contractors are based strictly on the owner's personal credit. For larger contractors, credit strength, experience, the type of work being performed and financial strength is all considered.
A bid bond guarantees your bid is accurate and that you will provide a performance bond if you are awarded the job. A performance bond guarantees you will not default on the contract, and that all work will be performed properly.
Bid bonds are submitted with your proposal to the obligee. If your bid is inaccurate, a claim can be filed on the bond that you must pay, and you will likely lose the job. Bid proposals without a valid bond included are rejected.
If you are awarded the job, you usually will have to provide a performance bond to start the project. Learn more about the process by visiting the construction bond guide.
Usually no, they are separate. However, Ohio is an example where bid bonds automatically become performance bonds if you are awarded the contract.
It is possible. However, not everyone qualifies. Smaller contracts, about $400K and under, are underwritten on personal credit of the owners. It is possible to qualify with minor credit issues; however, there are no bad credit markets available for people with major credit problems.
Larger contractors can get approved with credit issues, as larger contracts requires a more detailed review including business financial statements, industry experience, banking records, supplier references and the owners' personal credit. Underwriting guidelines change based on the size of the contract because surety bonds are a form of credit to you.
Yes. However, your credit must be acceptable and you will be limited to smaller bonds unless you have extensive industry experience and a good amount of equity within the company. You can apply for bid bonds and see if you qualify for bonding.
It is your pre-approved bond limits. Bond lines include single and aggregate limits. The single limit is the largest bond you can get for one specific job. The aggregate limit is the total amount of bonded work on hand you can have at once.
Your marriage legally joined your assets with your spouse, and the surety will require you to personally guarantee to reimburse them in the event of a valid claim. Your spouse will also have to personally guarantee on your behalf to ensure they are on board with pledging your shared assets. Bonding companies also use spousal indemnification to get an indication of your character. If your spouse will not guarantee you, neither will they.
Work with a construction CPA to ensure your financial statements are properly prepared and presented to qualify for larger contracts.
Working with a professional surety agent is also crucial. Going to a P&C insurance agency is not wise, unless they have surety experts available. Good surety agencies have direct access to the best markets allowing for the lowest rates, and are able to work with your CPA to present your company properly.
What's your bond cost?
Bond costs vary by applicant, bond amount, bond type & the agency you choose. You can get a general idea of costs using our Quick Estimate tool to the right or an exact quote instantly online!
Get the lowest rates
There are many things you can do to encourage bonding companies to offer you discounted rates. We can advise you on how to maximize your bond lines and minimize your bond costs. Contact us today for a free consultation.
1-Step Ballpark Estimate
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