A bid bond is a form of surety underwritten by a bonding company. When a contractor submits a bid, they also post a bid bond, typically valued at 5 to 10 percent of the bid amount. The bond guarantees that if the general contractor wins the bid, they will sign the contract and honor the bid price. If the contractor refuses or fails to sign, the bonding company pays the owner a claim up to the bond amount, allowing the owner to rebid or accept a higher bid without loss.
Bid bonds are standard on commercial projects and public works bids where the owner needs assurance that winning bidders will perform. On residential custom builds, bid bonds are rare because the client relationship is more personal and the builder’s reputation is at stake. Residential spec developers may use bid bonds when selecting a contractor for a large or spec project. Bid bonds are different from performance bonds, which guarantee completion of the work after the contract is signed. Getting a bid bond requires a surety account with a bonding company, which has credit and experience requirements. Builders should understand that bonding capacity is a resource: if a contractor is fully bonded on other projects, they may not have capacity for a new bid bond.