What each bond guarantees
Construction bonds are three-party agreements between the contractor (principal), the owner (obligee) and a surety. Each bond covers a different risk at a different stage of the project.
- Bid bond: submitted with the bid. If the selected bidder refuses to sign the contract or furnish the required bonds, the surety compensates the owner up to the bond amount.
- Performance bond: provided after award. It protects the owner if the contractor fails to perform the contract.
- Payment bond: provided after award. It protects subcontractors and suppliers who furnish labor or materials and are not paid.
When public owners require bonds
On federal work, the bonds statute formerly known as the Miller Act requires performance and payment bonds for construction contracts above the dollar threshold stated in FAR 28.102-1, and the same section sets alternative payment protections for smaller contracts above a lower threshold. Under FAR 28.101-1, a bid guarantee is generally required whenever a performance bond or performance and payment bond is required.
Most states have their own bonding statutes for state and local public works, often called Little Miller Acts, with their own thresholds. Always follow the specific solicitation.
Bond paperwork in the bid package
Bond problems are a common reason an otherwise good bid gets rejected. Before bid day, confirm:
- The required bond form: the owner’s form, a standard industry form, or the surety’s form.
- The required amount, often stated as a percentage of the bid price.
- Acceptable sureties, such as those listed by the U.S. Treasury for federal work.
- Signatures, seals and power of attorney for the surety’s attorney-in-fact.
- Whether a certified check or other security may substitute for a bid bond.
Planning with your surety
Share the solicitation with your surety agent early, especially for a larger project or a new owner. The agent can confirm capacity and turnaround time. The SBA Surety Bond Guarantee program can help eligible small businesses obtain bonds.
How Bidmere helps
Bidmere organizes the bond requirements of a solicitation into the bid package checklist and flags missing items for your team and surety. Bonding decisions and surety relationships stay with your company.
Common questions
Is a bid bond the same as a bid guarantee?
A bid bond is one form of bid guarantee. Some solicitations also accept certified checks or other security; the solicitation states what is acceptable.
Who pays for construction bonds?
The contractor buys bonds from a surety, usually paying a premium. The cost is typically considered when preparing the bid price.
Do private projects require bonds?
Only if the owner or contract requires them. Many private owners do require performance and payment bonds on larger projects.