There has been massive growth in the construction business in recent years. China, the US, and India drive global construction industry growth.

Yet, the construction sector is a risky business. Contractors need to have a firm grasp of the financial risks involved to protect themselves and their businesses.

If you’re in the construction industry, you may have heard the term “bid bond” before, but what exactly? A bid bond is a type of surety that a contractor purchases to ensure that they will be able to cover the cost of their bid if they are awarded the contract.

The following article will discuss what this bond is, when is it needed and other things you need to know about them.

What is a Bid Bond?

A bond is a type of surety bond often required in the bidding process for construction projects.

The bond protects the project owner from financial loss if the winning bidder fails to enter into a contract or perform the work as specified.

Who is Involved in a Bond?

There are three parties involved in abond:

The Obligee – This entity requires the bidder to post the bond, typically the project owner.

The Principal – This is the company or individual submitting the bid.

The Surety – This is the insurance company that issues the bond and backs the principal’s bid.

When is a Bond Needed?

Here are some instances when you need the bond.

1) When The Project Is At The Bidding Stage

These bonds are usually required when a project is up for bidding. The contracting company will ask for a bid bond to ensure that you can complete the project.

It protects them from any financial loss if you back out or fail to complete the job. In short, it ensures that you are a responsible bidder.


The bonds are also known as:

  • -Tender bonds.
  • -Proposal bonds.
  • -Quote bonds.

They all serve the same purpose.

2) When The Project Is Big And Complex

This type of bond is also required when extensive and complex projects. The contracting company wants to make sure that you can complete such a project.

They don’t want to take any chances with their money to ask for a bid or tender bond. It is a way for them to protect their investment. The bond will also show that you are a severe and responsible bidder.

This form of bond is also known as a performance bond. It guarantees that you will complete the project according to the terms and conditions outlined in the contract. If you fail to do so, the surety company will step in and pay the damages.

3) When The Project Is Time-Sensitive

Some projects have a set timeline that cannot be missed. If the job is time-sensitive, the bid bond guarantees that the contractor will begin work on the date specified in the contract.

Bid bonds are common in construction projects because the completion date is often critical. For example, if a school needs to be built before starting a new semester, the construction company may be required to post a proposal bond.

Additionally, the bid bond ensures that the contractor has the financial resources to complete the job if the project is large and complex.

This type of bond is also common in government contracts and privately funded projects but overseen by a government agency.

Benefits of Getting Bid Bonds

Here are some advantages of using these agreements.

1) They Improve Your Chances Of Winning A Contract

If you are one of the lowest bidders for a project, the bond gives the contracting agency assurance that you will follow through with your bid. It can be the deciding factor in awarding you the job.

2) They Protect The Agency If You Default On Your Bid

The bond protects the contracting agency if you, as the bidder, fail to sign the contract or perform the work according to your bid. In this case, the surety company that issued your bond will pay the difference between your bid and the next lowest responsible bidder.

3) They Can Be Used As Collateral

You can use the bond as collateral for a loan to help finance your project. You don’t have to put up your assets as collateral.

If you’re thinking of bidding on a project, make sure you understand the requirements and get a bid or proposal bond if necessary.


Whether you are a business owner or an individual contractor, it is crucial to understand the bond and how it works if you plan on bidding on a job that requires a bid or proposal bond. Contact the experts immediately if you have any questions about bid bonds or surety bonding.



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