The phrase “converting the bid bond” is common on job sites and is not a thing that happens. Two instruments exist, they are issued at different moments, and the first one is a promise about the second.
What the bid guarantee actually promises
FAR 28.001 defines it in two numbered parts. A bid guarantee is a form of security assuring that the bidder
“(1) Will not withdraw a bid within the period specified for acceptance; and (2) Will execute a written contract and furnish required bonds, including any necessary coinsurance or reinsurance agreements, within the time specified in the bid, unless a longer time allowed, after receipt of the specified forms.”
Promise (1) is the one everybody knows: hold your price.
Promise (2) is the one that matters here, and it is easy to read past. The bidder is promising to furnish required bonds — to go and obtain performance and payment bonds and hand them over. That promise would be meaningless if the bid guarantee were itself those bonds. You do not promise to furnish the thing you have already furnished.
Why the requirement exists at all
FAR 28.101-1(a) links the two directly:
“bid guarantees shall be required whenever a performance bond or a performance and payment bond is required”
with waiver available to the chief of the contracting office.
So the bid guarantee is not a free-standing idea about bid seriousness. It is attached to the bonds. Its whole function is to give the Government a remedy if a bidder wins and then cannot or will not produce the performance and payment bonds the contract requires.
Read that way, the structure is simple: the bid guarantee protects the promise, and the performance bond performs the work.
The amounts are measured against different things
FAR 28.101-2(b) sets the bid guarantee at
“at least 20 percent of the bid price but shall not exceed $3 million.”
The performance bond, by contrast, is measured against the original contract price — 100 percent of it under FAR 28.102-2(b)(1), with “original contract price” defined at 28.102-2(a) as the award price.
Different bases, different percentages, a cap on one and not the other. Two instruments that converted into one another could not be sized by two unrelated formulas.
What actually carries over
Not the paper. What carries over is the surety’s underwriting.
A surety does not issue a bid guarantee casually, because promise (2) exposes it to the cost of the winning bidder’s failure to bond. In practice the surety has already formed a view about whether it would issue the performance bond before it agrees to the bid guarantee. That view is the continuity between the two instruments — not a document that transforms.
Which is why the awkward cases are the ones where something changed between bid and award: the scope moved, the schedule moved, the contractor’s backlog filled up with other wins, or the low bid turned out to be low for a reason the surety now wants to talk about.
What happens if the bonds do not appear
That is the scenario the bid guarantee is built for, and it is its own subject — the remedy runs against the bid guarantee, and the consequences for the bidder do not stop at the money.
What this page does not cover
Everything above is federal, under FAR Part 28. State and local bid security rules are set by their own statutes, and they differ on the percentage, on whether a certified check or other instrument may stand in place of a bond, and on what happens to the security when a low bidder walks away.
It also does not cover annual bid bonds, which the FAR defines but confines to contracts other than construction.
