Bid Bond vs Performance Bond

The bid bond and the performance bond cover different stages of the same procurement. The bid bond is required at submission and protects the owner against the cost of a contractor walking away after winning the bid. The performance bond is required at contract execution, after the award is made and before the work begins, and protects the owner against the cost of the contractor failing to complete the work.

Sequentially: the contractor submits the bid with the bid bond attached. The owner evaluates the bids and identifies the apparent low responsive bidder. The owner notifies the apparent low bidder of the intended award. The contractor provides the performance and payment bonds (P&P bonds) within the timeframe the solicitation specifies, typically a defined number of days from notice of award. The contract is executed. The work begins.

The bid bond’s function ends when the P&P bonds are accepted and the contract is executed. From that moment forward, the surety’s exposure shifts from the bid bond’s narrow obligation to the performance bond’s much broader one.

The percentage

Bid bonds are typically required at 5% or 10% of the bid amount, with the percentage set by the solicitation. Federal procurement under FAR Part 28 typically requires bid guarantees only when performance and payment bonds are required, and the standard percentage on covered procurement is 20% of the bid or $3 million, whichever is less, though the solicitation specifies the actual requirement. State and municipal Little Miller Acts usually impose lower percentages (5% or 10% are common). Private owners impose whatever the contract calls for.

The form

The bid bond has to be on the form the solicitation specifies. Federal procurement uses Standard Form 24 (SF-24) for bid guarantees; some agencies have agency-specific forms layered on top. State and municipal owners use their own bid bond forms, sometimes mandated, sometimes accepting the surety’s standard form. Private owners typically accept the surety’s form unless the contract specifies otherwise. A bid bond on a non-conforming form can be rejected outright.

Alternatives to a bid bond

Some procurements accept alternatives to a surety bid bond: a certified or cashier’s check, an irrevocable letter of credit, or cash deposited with the agency. The alternatives are operationally inferior to a surety bond for the contractor (cash and letters of credit tie up working capital that a bid bond does not) and are typically used only when the contractor’s surety relationship is constrained or when the procurement specifically requires the alternative.

When the bid bond is called

A bid bond is called when the apparent low bidder declines to enter into the contract or fails to provide the required P&P bonds within the specified timeframe. The owner pursues the bid bond for the difference between the walking bidder’s price and the next responsive bidder’s, up to the bond amount. Bid bonds are rarely called in practice (most awarded bidders complete the contracting process), which is why sureties treat the bid bond as a low-exposure instrument.

The percentage

The performance bond is typically 100% of the contract value on federal construction under the Miller Act. State and municipal public construction usually follows the same convention through the state’s Little Miller Act, though the percentage and threshold vary by state. Private contracts vary widely; some require 100% performance bonds, some require less, some require none.

The companion payment bond

On public work, the performance bond is almost always issued together with a payment bond, also typically at 100% of the contract value. The performance bond runs to the owner; the payment bond runs to the subcontractors, suppliers, and laborers. The two are issued as a paired instrument and are sometimes referred to as “P&P bonds” in industry shorthand.

The form

Federal performance bonds are on Standard Form 25 (SF-25). Federal payment bonds are on Standard Form 25-A (SF-25A). State and municipal owners use their own forms. Private contracts use forms specified by the contract or accepted by the surety. The form requirement is mechanical but strict: a bond on the wrong form does not satisfy the contractual requirement.

Submission timing after award

The solicitation specifies how soon after notice of award the P&P bonds have to be provided. Common timeframes are 7 to 14 days. The timeframe matters because the surety needs time to issue the bonds (the issuance is administrative once the underwriting is in place, but it is not instantaneous) and the contractor needs time to coordinate with the producer. A contractor that is not actively engaged with the surety from notice of award is exposed to missing the submission window, which can result in the award going to the next responsive bidder and the bid bond being called.

The lead time required to obtain a bond varies with the contractor’s relationship with the surety and with the project’s relationship to the contractor’s standard work.

Routine bonds within established capacity

For a contractor with an established surety relationship and a project that fits comfortably within the existing capacity, bid bonds are typically issued within the same business day or within a few business days at most. The surety has already done the underwriting; issuing the bond is administrative. Performance and payment bonds at award are similarly fast, contingent on the contract documents being finalized.

Projects at or above the existing capacity

When a project pushes the contractor’s single-job ceiling or pushes the aggregate, the surety has to do supplemental underwriting before issuing the bond. This can take days to weeks depending on how much above the existing approval the project sits. A contractor pursuing a project that pushes capacity should engage with the producer well before the bid date, not on the bid date.

First-time work in a new category

When a contractor pursues work in a project type, geography, or owner the firm has not bonded for before, the surety may require additional underwriting attention even if the project size is within the existing capacity. The surety is assessing whether the contractor’s capability extends to the new work, and the assessment takes time.

Constrained surety relationships

A contractor whose surety relationship is constrained (recent losses, weak financials, slow producer responsiveness) faces longer lead times across the board. The constraint is not the surety’s fault and is not solved by pressuring the producer; the constraint is the underwriter responding to risk signals. The fix is at the relationship level, not at the per-bid level.

The contractors that move through bonded work without friction treat bond documentation as a continuous workstream alongside the bid effort, not as an isolated administrative task that surfaces twice (at submission and at award).

At bid time, the action checklist captures the bid bond requirement: the percentage, the form, the surety qualifications the owner has imposed (T-Listed status, A.M. Best rating minimums, anything else specified), and the deadline. The producer is contacted with the project information and the requirements as soon as the bid pursuit is committed, not on the day the bid is due.

At award, the action checklist captures the P&P bond requirements: percentages, forms, submission timing, and the documentation the contractor has to gather to support the bond issuance (executed contract, approved schedule, list of major subcontractors). The contractor moves directly from notice of award to bond issuance without the post-award scramble that defines less-prepared firms.

The ScalaBid Submission Packagesurfaces the bid bond and P&P bond requirements directly in the action checklist, with each item carrying the solicitation reference, the percentage or amount, the form, and the surety qualifications the owner has imposed. The contractor takes the checklist to the producer with the lead time the relationship needs, rather than discovering the bond requirements at the end of a bid window when the rest of the response is otherwise ready to submit.