Performance and payment bond

They are usually issued together and usually written for the full contract value. The performance side gives the owner a remedy if the contractor fails to finish. The payment side protects the owner from liens filed by unpaid second-tier parties, who can have a claim against the property even though the owner never contracted with them.

The cost is real and it is not small — commonly around one to three percent of the contract value, varying with the contractor's credit and the size of the job. That percentage is the reason this term matters during comparison rather than after it.

Bonds are among the most common sources of an apples-to-oranges bid. One bidder carries the bond in its number, another writes "bond not included, add 1.5% if required", and a third says nothing at all. Read as submitted, the bidder that excluded the bond looks cheapest, and on a bonded job it is not. This is a leveling adjustment in the most literal sense: find the bond requirement in the contract documents, then add the stated or estimated bond cost to every bidder that did not carry it.

Watch for the silent case in particular. An explicit "bond by others" is an exclusion you can see; a proposal that never mentions bonds on a job that requires them is a number whose basis is unknown, and it has to be asked about rather than assumed either way.