Bid Bond
A guarantee submitted with a bid that ensures the bidder will enter into a contract if selected and provide required performance and payment bonds.
Overview
A bid bond is a type of surety bond submitted alongside a proposal or bid for a government contract. It guarantees that if the bidder wins the award, they will follow through — signing the contract and furnishing any required performance and payment bonds. If the bidder backs out, the surety company pays the government the difference between the winning bid and the next acceptable offer, up to the bond amount.
Why It Matters in GovCon
Bid bonds are most common in construction and large service contracts. They protect the government from bidders who submit unrealistically low prices and then refuse to perform. For contractors, having bonding capacity is a prerequisite for competing on many lucrative projects.
Key Details
- Typical Amount: Usually 20% of the bid price, though requirements vary by solicitation.
- Surety Company: Bonds must be issued by a surety listed on the Treasury Department's approved list (Circular 570).
- Forfeit Conditions: If the winning bidder refuses to execute the contract or fails to provide required bonds, the bid bond is forfeited.
- Related Bonds: Performance bonds (guaranteeing completion) and payment bonds (guaranteeing subcontractor/supplier payment) are typically required after award.
Related Terms
- Performance Bond
- Payment Bond
- Surety
- Miller Act
More Finance Terms
The government's internal estimate of what a procurement should cost, used to evaluate the reasonableness of contractor proposals.
The projected cost to finish remaining work on a contract or project based on current status.
Overhead costs that support the overall organization rather than direct contract performance.
Costs that cannot be traced to a single contract but are allocated across projects via indirect rates.
The total cost of owning, operating, maintaining, and disposing of a system or product over its entire useful life.
Costs that can be identified specifically with a contract or project but are not labor or materials — such as travel, subcontracts, or specialized services.
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