Glossary
Bid bond
A bid bond is a surety instrument submitted with a bid that guarantees two things: that the bid is genuine, and that if awarded, the bidder will execute the contract and provide the required performance and payment bonds. If the bidder walks away, the surety pays the agency the bond amount, and the surety then looks to the contractor.
The standard amount on federally funded construction is 5 percent. 2 CFR 200.326 requires a bid guarantee equivalent to five percent of the bid price on construction contracts exceeding the simplified acquisition threshold, in the form of a bid bond, certified check or equivalent firm commitment.
The short version
- A bid bond is not insurance. If the surety pays, it will seek full reimbursement from you.
- 5 percent is the standard, and it is a percentage of your bid, so the exposure rises with the number you submit.
- A defective bid bond (unsigned, wrong percentage, wrong obligee, surety not on the approved list) is a classic nonresponsiveness rejection.
- Getting bonded requires a surety relationship built well before the bid, on financial statements and work history.
Why it matters to a bidder
The bid bond is a gate before the job, and most first-time public bidders discover the constraint too late:
- Start the surety relationship months early. Underwriting requires reviewed or audited financials, a work-in-progress schedule and a personal indemnity agreement from the owners.
- Your bonding capacity limits your bid size. Sureties set a single-job limit and an aggregate program limit. Both are visible to the agency in a responsibility determination.
- Check the obligee name and the surety's listing. Agencies frequently require the surety to appear on the U.S. Treasury list of approved sureties or to be licensed in the state.
- Bid mistakes have teeth. Withdrawing after opening without qualifying for the state's bid-mistake relief can cost you the bond.
A real example
A contractor bids $2.4 million on a municipal pump station with a 5 percent bid bond, or $120,000 of exposure. After opening it discovers it omitted an entire electrical scope worth $310,000 and asks to withdraw. The city allows withdrawal only on proof of clerical error from original worksheets. The omission was a judgment error in scope review, not a clerical mistake. The contractor signs the contract at its bid price and loses money, because the alternative was forfeiting $120,000 and a nonresponsibility record.
How state and local differs from federal
The federal rule for direct federal construction comes from FAR 28.102-1, which requires performance and payment bonds above $150,000 and alternative payment protections between $35,000 and $150,000.
State and local requirements are set by state Little Miller Acts and by local ordinance, and the thresholds are typically much lower, often $25,000, $50,000 or $100,000 for public works, with some states setting them lower still for particular kinds of public bodies. Bid security is frequently required at the same time. Two other differences: many state and local agencies accept a certified or cashier's check or an irrevocable letter of credit in place of a bond, which can be quicker for small firms; and several states cap or limit bid security requirements on smaller contracts to avoid excluding small contractors, which the Uniform Guidance also treats as a competition concern.
Common questions
Is 5 percent always the amount?
It is the common standard and the federal-grant requirement, but state and local solicitations sometimes specify 10 percent or a fixed dollar amount. Read the instructions to bidders.
Can I use a certified check instead?
Often yes at the state and local level, and the Uniform Guidance expressly allows a certified check as an equivalent firm commitment.
What happens if I refuse the award?
The agency draws on the bid security, generally up to the difference between your bid and the next bid, capped at the bond amount, depending on state law.
Why was my bid bond rejected?
Most often an unsigned power of attorney, a surety not licensed in the state or not on the Treasury list, the wrong obligee, or an amount below the required percentage.