The Contracting business involves many types of documentation, and a bid bond is one of the most important. It is a type of assurance provided by a third party to the owner of a project.

So, what are bid bonds? They are also called tender bonds. It is a surety given by a contractor to the project owner. It assures the project owner that if the successful bidder defaults on his work, the contractor will pay the compensation. 

The project owner can declare the contract awarded to the bidder if he fails to execute it. The minimum amount of this bond is usually 10% of the bid amount, and one-fifth to one-third of the bid bond services are rejected.

Contractors use tender or bid bonds in construction bidding to guarantee that they will pay the contract if they win it and thus help secure the work. They are a form of security that ensures that when you win the project, you have enough money to pay for it.

It usually ranges from 10% – 20% of the total contract price depending on factors such as:

  • the size of the project (more significant projects require more money)
  • the nature of work involved (more complex projects need higher bid amounts)

Below are some crucial aspects to help you understand what bid bonds are and why they are essential:

Type of insurance:

Bid bonds are a type of insurance that a contractor gives to the owner of a project. This bond assures the owner that if the successful bidder defaults on his work, he will compensate the owner. A bid bond has two primary functions:

 i) It acts as security to ensure that all contractual obligations will be met.

 ii) It gives an assurance to the project owner of getting back any money paid out in case there is a breach of contract by any party or even if there is no breach at all.

Provides Assurance to the Owner of a Project:

Some essential features are:

  • Bid bonds are surety bonds.
  • They ensure that the project owner gets paid for his work.
  • All construction projects require bid bonds, regardless of their size or type.
  • Government projects require bid bonds as a rule, but some exceptions exist.
  • Private projects also need bid bonds to ensure that they will be paid if the contractor defaults on his contract.

It Saves Time:

A bid bond is a guarantee that your insurance company or bank issues. It ensures that the project owner doesn’t have to start with all bidders again and waste time, paperwork, and money. These bid bonds are also called tender bonds.


Project owners require bid bonds to ensure that the bidder will complete the work as specified in the contract. It is also known as performance bonds, a guarantee that an applicant executes in favor of the government. The service is usually required to be paid in advance before submitting a bid for a project. Bid bonds have been in use for a long time and are still used today for construction projects.

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