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Bid vs. Performance vs. Payment Bonds
A bid bond protects the owner during bidding. A performance bond protects the owner if the contractor does not finish. A payment bond protects subcontractors and suppliers if the contractor does not pay. Public projects usually require all three.
Side-by-side comparison
| Bid bond | Performance bond | Payment bond | |
|---|---|---|---|
| Stage | Bidding | Construction | Construction |
| Guarantees | You will sign and furnish bonds at your price | You will finish the work under the contract | You will pay subs, laborers, and suppliers |
| Protects | Project owner | Project owner | Subs and suppliers, and the owner |
| Typical amount | 5% to 10% of bid | 100% of contract | 100% of contract |
| Typical cost | Free | 3% of the bond amount | Usually included with the performance bond |
| Ends when | Contract and bonds are signed | Work is complete and accepted | Claim period ends |
The order you will need them in
The bid bond comes first, with your bid. If you win, you sign the contract and provide the performance and payment bonds, which replace the bid bond. If the owner requires a warranty period, a maintenance bond follows at completion.
Why performance and payment bonds come as a pair
Public owners that require one require both. Sureties issue them together, on one application and with a single premium, because the contractor risk behind both is the same.
Which one do I need?
Read the solicitation or contract. It names the bonds, the amounts, and sometimes the form. If you are unsure, send it to us and we will tell you what to apply for.
Related bonds
Bid Bond
Guarantees your bid. If you win and walk away, the owner is paid the difference.
Performance Bond
Guarantees you will finish the project under the contract terms.
Payment Bond
Guarantees you will pay your subcontractors, laborers, and suppliers.
Common questions
Do I need a bid bond if I do not win?
You provide it with the bid. If you do not win, it is returned or simply expires without a charge claim.
Can one bond cover both performance and payment?
They are separate bonds, but they are usually issued together. Some owners use a combined form.
Which bond protects subcontractors?
The payment bond. It gives unpaid subcontractors, laborers, and suppliers a claim against the surety.