A bid bond is the bond form of a bid guarantee: security that you will not withdraw your bid while it is open and, if you win, that you will sign the contract and furnish the bonds it requires. It does not promise the work itself. Those two promises are everything it secures.
What the FAR means by a bid guarantee
The FAR defines the term, and the definition is the best place to start. FAR 28.001 describes a bid guarantee as:
“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.”
Read it slowly, because everything else on this page is a consequence of it. The subject of the sentence is the bidder. Both promises are about what the bidder will do after the bid is in: leave the bid standing for the period the owner specified, and then, if the owner accepts it, sign and bond up within the time the bid allows.
The definition calls a bid guarantee “a form of security”, which is wider than a bond. The same section defines a bond separately, as:
“a written instrument executed by a bidder or contractor (the ‘principal’), and a second party (the ‘surety’ or ‘sureties’) … to assure fulfillment of the principal’s obligations to a third party (the ‘obligee’ or ‘Government’)”
A bid bond is a bond given to assure what the bid guarantee definition describes. That is why the two names get used as one. This page uses bid bond for the instrument and bid guarantee for the FAR’s defined term.
Is a bid guarantee a performance guarantee or a financial guarantee?
It is neither, in the sense that the definition above uses neither label. What it contains is two promises about the bidder’s conduct.
The first is that the bidder will not withdraw within the period specified for acceptance. The second is that the bidder will execute a written contract and furnish the required bonds within the time specified in the bid. There are two clocks in the definition. The acceptance period governs the first promise, and “the time specified in the bid” governs the second, with a longer time permitted where one is allowed. Both are stated terms, so the definition cannot be applied without the solicitation in hand. Nothing in either promise is that the construction will be finished, and nothing in either is that anyone who supplies labor or material will be paid.
So the closest description is a guarantee about the bid: that the bidder will stand behind it, and follow through to a signed contract with its bonds in place. A performance guarantee would be about the work. A bid guarantee is about the step before the work starts.
The second promise points at different bonds
Promise (2) in the definition is a promise to obtain other instruments. It names “required bonds”, and the required bonds on federal construction work are set by statute. 40 U.S.C. § 3131(b) provides that “a person must furnish to the Government the following bonds, which become binding when the contract is awarded.”
Those are the performance bond and the payment bond, and they start to matter at award. The bid guarantee does not turn into either of them. It assures that they will be furnished.
A bond, in the FAR’s definition, assures “fulfillment of the principal’s obligations to” the obligee. A bid guarantee assures the two things in its own definition: that the bidder will not withdraw the bid, and that the bidder will furnish the required bonds. How the three differ is covered in our guide to performance, payment and bid bonds side by side.
Who requires a bid bond, and when
On federal construction, FAR 28.101-1(a) ties the bid guarantee directly to the real bonds:
“bid guarantees shall be required whenever a performance bond or a performance and payment bond is required”
and describes the requirement as waivable by the chief of the contracting office.
That sentence runs in a direction people do not expect. The bid guarantee is not a separate requirement that some solicitations happen to carry. It is a consequence of the job being bonded work. A federal solicitation that asks for a bid guarantee has already told you that performance and payment bonds are coming, and the bonds it names are the ones the guarantee assures you will furnish.
The waiver is also specific: FAR 28.101-1 names the chief of the contracting office as the person who may waive the requirement.
“When” therefore has two layers. The bid guarantee is required when performance and payment bonds are, and those are required by statute above a dollar threshold. 40 U.S.C. § 3131(b) puts it as “Before any contract of more than $100,000 is awarded for the construction, alteration, or repair of any public building or public work of the Federal Government”, and FAR 28.102-1(a) states its own figure: performance and payment bonds are required “for any construction contract exceeding $150,000.” The statute and the FAR print different numbers, and a guide that prints only one is printing half the rule.
What counts as a bid guarantee on federal construction
FAR 28.101-1(b) limits the acceptable forms on construction contracts to separate bid guarantees. The word separate has a counterpart in the FAR’s definitions. An annual bid bond is defined as:
“a single bond furnished by a bidder, in lieu of separate bonds, which secure all bids (on other than construction contracts) requiring bonds submitted during a specific Government fiscal year.”
The parenthesis excludes construction in the definition itself. On federal construction, then, the guarantee is posted for each bid, and a single bond covering a year of bids is not an available form.
How much a federal bid guarantee is
FAR 28.101-2(b) sets the amount:
“The bid guarantee amount shall be at least 20 percent of the bid price but shall not exceed $3 million.”
The FAR’s definition of a penal sum reflects the same structure. It is “the amount of money specified in a bond (or a percentage of the bid price in a bid bond) as the maximum payment for which the surety is obligated”, so on a bid bond the figure is stated as a percentage of the bid, and it is the ceiling on what the surety is obligated to pay.
It is a share of your own bid, so no two bidders on the same solicitation post the same figure. It is also capped: above the ceiling the guarantee stops growing while the contract keeps growing. For how a bid bond is bought and what drives its cost, see the bid bond cost guide.
State and local work is a different rulebook
Everything above is the FAR and applies to federal contracts. On state and local public work, bid security is set by that jurisdiction’s own law, and the four provisions below show how far those rules vary.
Where states do set it, the figures differ from the federal one. Oklahoma’s 61 O.S. § 107 requires a bidder on a public construction contract exceeding $100,000 to accompany the bid with “a certified check, cashier’s check or bid bond equal to five percent (5%) of the bid”, or with an irrevocable letter of credit in an amount equal to five percent (5%) of the bid. Indiana’s Ind. Code § 36-1-12-4.5 provides that a political subdivision or agency “shall require a bond or a certified check to be filed with each bid” if the cost of the public work is estimated to be more than two hundred thousand dollars. South Carolina’s S.C. Code § 11-35-3030 requires bid security for competitive sealed bidding on construction contracts in a design-bid-build procurement in excess of one hundred thousand dollars, and for other contracts the State Engineer’s Office prescribes, in an amount of at least five percent of the bid. North Dakota’s N.D.C.C. § 48-01.2-05(4) requires the advertisement for bids to state that each bid must be accompanied by a separate envelope containing the contractor’s license and bid security, in a sum equal to five percent of the full amount of the bid and in the form of a bidder’s bond.
Four states, four different rules, and none of them is the federal one.
What this page does not cover
It does not describe what happens to a bid guarantee when a bidder does not proceed. The four state provisions above are examples, not a state-by-state guide. For a particular job, check the bid documents and the governing law.
