Bid Bond vs. Performance Bond: What’s the Difference?
- Construction & Contractor Bonds
- Posted On
by A bid bond guarantees that if you win a project, you’ll sign the contract at your bid price and provide the required bonds. A performance bond guarantees you’ll actually complete the project once you’ve signed the contract. The bid bond comes first and is free; the performance bond follows after award and costs 3% of the contract. They’re sequential stages of the same bonded project, not alternatives.
Bid and performance bonds work in sequence: the bid bond gets you to the table, the performance bond backs the work. Understanding the handoff between them helps contractors bid confidently and helps owners structure their bonding requirements. This guide explains both and how they connect.
Both build on what is a surety bond. For the companion comparison, see payment vs. performance bond.
Side-by-Side Comparison
| Feature | Bid bond | Performance bond |
|---|---|---|
| Guarantees | You’ll honor your bid and sign the contract | You’ll complete the project |
| When | Submitted with the bid | Issued after contract award |
| Amount | 5–20% of bid | 100% of contract |
| Cost | Free | 3% of contract |
| Risk to surety | Low | High |
What a Bid Bond Does
A bid bond is submitted with your project bid. It guarantees two things to the project owner:
- If you win, you’ll sign the contract at your bid price (you won’t walk away or try to renegotiate)
- You’ll provide the required performance and payment bonds for the project
Bid bonds are issued at no charge — you only pay when the project is awarded and the performance bond is issued. Learn more on the bid bonds page, or see how to get a bid bond.
What a Performance Bond Does
Once you win and sign the contract, the performance bond takes over. It guarantees you’ll complete the project according to the contract terms. If you default, the owner files a claim and the surety investigates the claim and if valid, pays the Obligee.
Learn more on the performance bonds page.
How They Work Together: The Sequence
On a typical bonded project:
- 1. Bid stage: You submit your bid with a bid bond (usually 5-20% of the bid amount).
- 2. Award: If you win, the owner notifies you and you sign the contract.
- 3. Performance/payment bonds: You provide the performance and payment bonds (usually 100% of the contract). The bid bond’s job is done.
- 4. Construction: The performance bond stays in force until the project is complete and accepted.
When a surety issues your bid bond, they’re effectively pre-approving you for the performance bond behind it. A surety won’t give you a bid bond unless they’re willing to back the full project. So getting the bid bond is the real qualifying step — the performance bond is the follow-through.
Cost Comparison
The cost difference reflects the risk difference:
- Bid bond: Completely free. The surety’s risk is limited to the bid spread, and only if you win and walk away.
- Performance bond: Usually around 3% of the contract value for qualified contractors (3–10% for sub-standard credit), because the surety guarantees the entire project.
For full pricing, see the surety bond cost guide. Credit-challenged contractors should read can I get a bid bond with bad credit?.
What About Payment Bonds?
Most projects also require a payment bond alongside the performance bond, guaranteeing subs and suppliers get paid. The performance and payment bonds are usually issued together. For that comparison, see payment vs. performance bond.
Frequently Asked Questions
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What is the difference between a bid bond and a performance bond?A bid bond guarantees you’ll honor your bid and sign the contract if you win. A performance bond guarantees you’ll complete the project after signing. The bid bond comes first and is completely free; the performance bond follows award and costs around 3% of the contract. They’re sequential stages, not alternatives.
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Do I need both a bid bond and a performance bond?On most bonded projects, yes — but at different stages. You submit the bid bond with your bid, and if you win, you provide the performance (and usually payment) bond before starting work. The bid bond’s role ends once the performance bond is in place.
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How much does a bid bond cost?Bid bonds are usually free — you only pay when the project is awarded and the performance bond is issued. The bid bond amount is typically 5–20% of the bid, but that’s the coverage amount, not a cost you pay upfront.
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How much does a performance bond cost?Performance bonds cost 3% of the contract value for qualified contractors, or 3–10% for credit-challenged or hard-to-place contractors.
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Why is a bid bond free but a performance bond is not?Because the risk is different. A bid bond only covers the bid spread if you win and walk away — a small, unlikely loss. A performance bond guarantees the entire project, a much larger exposure, so the surety charges a premium for it.
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What happens if I win a bid but can’t get a performance bond?You’d forfeit the project and potentially face a bid bond claim for the difference between your bid and the next bid. This is why sureties effectively pre-qualify you for the performance bond before issuing the bid bond — they won’t issue a bid bond they can’t back.
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Can I get a bid bond with bad credit?Yes, although it may be difficult to secure an approval for the bond. If the owner’s credit does not qualify for a surety bond approval, they can bid with a check.
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What is the bid bond amount based on?The bid bond amount is a percentage of your bid — commonly 5–20%. It represents the maximum the surety would pay the owner if you win and fail to honor your bid.
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