Bid bond
A bid bond is a surety guarantee that a bidder will honor its bid and enter into the contract at that price if the work is awarded to it.
Also written as bid security, bid guarantee.
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Reviewed by Eric Collin · President and Founder of Firmo Construction, 20+ years in preconstruction and bid evaluation
It is issued by a surety on the bidder's behalf, usually for five to ten percent of the bid amount, and submitted with the bid itself. If the bidder is awarded the work and then refuses it, the owner can claim against the bond — typically for the difference between that bid and the next acceptable one, capped at the bond value.
Its practical function is to filter. A surety will not bond a contractor it does not believe can perform, so a bid bond is secondhand evidence that someone with money at risk has examined the bidder's books. That makes it a screening device as much as a financial instrument, and it overlaps with what prequalification is trying to establish.
For comparison purposes the bond itself is rarely the issue; whether it was required and provided is. A package where some bidders were bonded and others were not is not a like-for-like field, because the unbonded bidders were not subject to the same screening and carried none of the cost.
A bid bond is not the same as a performance and payment bond. The first guarantees the bid; the second guarantees the work. The bid bond usually also commits the surety to issuing the second one, which is why a bidder that cannot obtain a bid bond generally cannot be awarded bonded work at all.
- Performance and payment bond
A performance and payment bond is a pair of surety guarantees: one that the contractor will complete the work as contracted, the other that it will pay its subcontractors and suppliers.
- Subcontractor prequalification
Subcontractor prequalification is the process of vetting a subcontractor's capacity, financial standing, and safety record before inviting it to bid.
- Bid form
The bid form is the document a bidder must complete and sign to submit its price, prescribed by the owner so that every bid arrives in the same structure.
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