Bid Bond vs Performance Bond: What's the Difference?

If you're bidding on government construction or service contracts, you'll see these two terms everywhere. Here's what they actually mean.

If your RFP mentions "bid bond" or "performance bond," that's not optional paperwork. That's a financial instrument that costs real money and protects the government if you don't deliver. Mixing them up is a fast way to either lose the bid or get stuck with an unexpected expense.

	Bid Bond	Performance Bond
When you need it	With your bid submission	After you win the contract
How much	Usually 5% of your bid price	Usually 100% of contract value
What it protects	The government if you back out after winning	The government if you don't deliver
When it expires	When the contract is awarded	When the project is completed

Bid Bond: You submit it with your proposal

A bid bond is a guarantee that, if you win the contract, you'll actually sign it and start work. If you win and then back out, the government cashes the bond to cover the cost of re-bidding.

Key facts:

Typically 5% of your bid price (for a $100,000 contract, that's a $5,000 bond)
You buy it from a surety company before submitting your proposal
It's submitted with your bid — no bond, no bid, full stop
If you lose, the bond is returned / never cashed

Beginner trap: Finding out about the bid bond requirement on page 40 of the RFP, the night before the deadline. You can't get a bond in a few hours — surety companies need financial statements and may take days. Always check for bond requirements on your first read.

Performance Bond: You get it after you win

If your bid is accepted, the next step is a performance bond. This one guarantees you'll actually complete the project. If you go out of business or stop work halfway, the government files a claim on the bond and the surety company pays to finish the job.

Key facts:

Typically 100% of the contract value (not 5% — this is the real protection)
You get this bond after winning, before starting work
It stays in effect through the entire project and warranty period
Costs 1-3% of the contract value per year, depending on your financials

How they work together

On most government contracts, you'll deal with both:

Bid day: Buy a bid bond (5% of bid price), submit it with your proposal
If you win: The bid bond goes away, and you buy a performance bond (full contract value)
Project completion: The performance bond is released after the warranty period ends

Do you always need both?

No. It depends on the contract type and value:

Construction contracts over $150,000 (federal): Both bid and performance bonds are required under the Miller Act
Smaller service contracts: Often no bonds at all
State and local contracts: Requirements vary by state, check the RFP

What to do before you bid

If your RFP mentions bonds, talk to a surety company before you invest time in writing a proposal. Ask them: "Can I get a bid bond and performance bond for a project this size?" If the answer is no, you know immediately and can move on to bids you can actually win.

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