Difference Between Bid Bond vs Performance Bond
A bid bond promises you will sign the contract at the price you bid. A performance bond promises you will finish the work once you have signed. They cover different stages of the same job.
Required on most US public construction work and on private work where the owner asks for surety.
How the Two Bonds Follow a Job
Both bonds involve three parties: you as the contractor, the owner, and a surety company that stands behind you. They hand over from one to the next at award.
Post the Bid Bond
You submit the bid bond with your bid. It tells the owner that if you win and then walk away or refuse to sign, the surety covers the owner for the difference between your number and the next bid they have to accept.
Swap It for a Performance Bond
Once you sign, the bid bond has done its job and falls away. The performance bond takes over, and on federal work a payment bond is issued alongside it to cover your subcontractors and suppliers.
The Performance Bond Stands Until You Finish
It stays in force through construction. If you default, the surety either funds another contractor to finish the work or pays the owner its loss, up to the penal sum, which is the bond's maximum value.
Bid Bond, Performance Bond and Payment Bond
A bid bond is small and short lived. A performance bond is the size of the whole job and runs for its whole length. A payment bond usually rides alongside the performance bond and protects the people below you.
- On federal work, FAR 28.101-2 sets the bid guarantee at a minimum of 20% of the bid price, capped at $3 million.
- FAR 28.102-2 sets the performance and payment bonds at 100% of the contract price.
- The Miller Act threshold for requiring both bonds on federal construction is $150,000.
| Bond | What It Covers | Usual Penal Sum |
|---|---|---|
| Bid Bond | That you will sign at the price you bid | 20% of the bid price on federal work, commonly 5% to 10% elsewhere |
| Performance Bond | That you will complete the work to the contract | 100% of the contract price |
| Payment Bond | That your subcontractors and suppliers get paid | 100% of the contract price |
The Bond Is Written Against the Number You Bid
The penal sum follows your bid, so an overstated scope raises the bond, eats into your bonding capacity and can stop you bidding the next job. An understated scope leaves you bonded to finish work you never priced. Before the number goes in, the bid team checks the bond requirement in the instructions to bidders, the penal sums, and how much capacity the bond takes up.
| Contract value bid | $4,200,000 |
| Bid guarantee, 20% | $840,000 |
| Performance bond, 100% | $4,200,000 |
| Payment bond, 100% | $4,200,000 |
| Scope lines counted | 2,316 |
| Deviations flagged | 7 |
The Takeoff AI counts and prices the full scope from the drawings, and flags deviations across the scope of work, the technical specifications and the drawings. The estimator sizes the bond against a number that has already been checked line by line.
- Full scope counted and priced, traced to the sheet
- Deviations flagged across specifications, scope and drawings
Bonding Capacity Decides How Much You Can Bid
A surety gives you a total limit and a single job limit, and every bonded job you are carrying eats into both. Bid a job with an inflated scope and you tie up capacity you could have used elsewhere. That makes the accuracy of the number behind the bond a commercial question, not just an estimating one.
‘The bond is written against your number, so the number decides how much work you can carry.’
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Difference Between Bid Bond vs Performance Bond
What is the difference between a bid bond and a performance bond?
A bid bond covers the gap between bid day and signing, promising you will take the contract at the price you bid. A performance bond covers construction, promising you will finish the work.
How much is a bid bond?
On federal construction, FAR 28.101-2 sets it at a minimum of 20% of the bid price, capped at $3 million. On state and private work it is more often 5% or 10% of the bid.
How much is a performance bond?
On federal construction the penal sum is 100% of the contract price, and a payment bond of the same amount is issued with it.
What happens to the bid bond after award?
It falls away once the contract is signed and the performance bond is in place. It only pays out if the winning bidder refuses to sign.
Who are the parties to a surety bond?
Three: the contractor who buys the bond, the owner who is protected by it, and the surety company that pays out or arranges completion if the contractor defaults.