Surety Bonds: Bid Bonds

A Bid Bond is a bond given to a Federal, State, County or Municipal Government agency at the time of a bid which guarantees the good faith of the Contractor (Principal), i.e. that if the Principal is awarded the contract the Principal will enter into the contract and post the required Performance Bonds and Payment Bonds. Bid bonds are typically required only as a percentage of the Principal's bid, usually 5%.

Failure to enter the contract and post the required Performance and Payment Bonds generally leads either to forfeiture of the Bid Bond (usually in the penal sum of 5% to 20% of the bid) or more commonly, payment of the difference between the bidder's price and the second low bidder's price or the bond amount, whichever is less. Bid bonds are often required on public projects where formal competitive bidding is required, but are less frequently used on private projects.