Bid Bond vs Performance Bond
A bid bond guarantees that a winning bidder will sign the contract and provide the required bonds. A performance bond then guarantees that the contractor completes the work per the contract. The bid bond covers the tender phase; the performance bond covers the execution phase.
Key facts at a glance
- What each guarantees: a bid bond guarantees the winning bidder signs the contract and posts the required bonds; a performance bond guarantees the contractor completes the work as agreed.
- Phase: a bid bond covers the tender (bidding) phase; a performance bond covers the execution (delivery) phase after the contract is awarded.
- Who requires them: the project owner or public authority requires the bid bond during procurement and the performance bond at contract signing.
- Trigger: a bid bond is called if the winner refuses to sign or fails to post bonds; a performance bond is called if the contractor defaults on the work.
- Typical amount and cost: bid bonds are usually 1–10% of the bid; performance bonds are usually 10–100% of the contract value. The rate depends on the applicant's risk and financial capacity (0.5%–5% per year).
Bid bond vs performance bond: side-by-side comparison
| Criteria | Bid Bond | Performance Bond |
|---|---|---|
| Phase | Tender phase — while bids are submitted and evaluated. | Execution phase — after the contract is awarded and work begins. |
| What it guarantees | That the winning bidder signs the contract and provides the required bonds. | That the contractor completes the work per the contract terms. |
| Who is protected | The project owner / obligee running the tender. | The project owner / obligee that awarded the contract. |
| Typical amount | Usually 1–10% of the bid value. | Usually 10–100% of the contract value. |
| Trigger | The winner refuses to sign or fails to post the required bonds. | The contractor defaults on or abandons the work. |
| Typical cost | 0.5%–5% per year, depending on the applicant's risk and financial capacity. | 0.5%–5% per year, depending on the applicant's risk and financial capacity. |
What is a bid bond
A bid bond (also called a tender guarantee or bid guarantee) is a surety bond posted during a procurement process. It guarantees to the project owner — the obligee — that if the bidder wins, it will honor its bid: it will sign the contract at the offered price and provide any bonds the contract requires, such as a performance bond.
The bid bond protects the tender itself. It discourages frivolous or speculative bids and compensates the owner for the cost and delay of re-tendering or moving to the next bidder if the winner walks away. Because it only covers the short window between bid submission and contract signing, a bid bond is usually a small percentage of the bid — often 1–10%.
If the winning bidder refuses to sign or cannot post the required bonds, the owner calls the bid bond. The surety pays valid claims up to the bond amount, and the bidder then indemnifies the surety. Once the contract is signed and the performance bond is in place, the bid bond expires.
What is a performance bond
A performance bond is a surety bond that guarantees the contractor will complete the work in accordance with the contract — on scope, on quality, and within the agreed terms. It is issued at or shortly after contract signing and stays in force through delivery, protecting the owner for the life of the project.
Where a bid bond secures a promise to enter the contract, a performance bond secures the promise to perform it. Because it backs the whole obligation rather than a short tender window, a performance bond is typically a much larger percentage of the contract value — commonly 10–100%, depending on the jurisdiction and the owner's requirements.
If the contractor defaults — abandoning the work, failing to meet the specification, or becoming insolvent — the owner calls the performance bond. The surety validates the claim and either arranges completion or pays valid claims up to the bond amount, then recovers from the contractor under the indemnity.
Bid bond vs performance bond
The core difference is the phase each guarantee covers. A bid bond covers the tender phase and answers one question: will the winning bidder actually take the contract on the terms it offered? A performance bond covers the execution phase and answers a different question: will the contractor deliver the work as agreed?
That difference drives everything else. The bid bond is short-lived, small (typically 1–10% of the bid), and triggered only by a refusal to sign or to post bonds. The performance bond is long-lived, large (typically 10–100% of the contract), and triggered by a default on the work itself. One protects the integrity of the auction; the other protects the delivery of the project.
They are complementary, not alternatives. On most public tenders the owner requires a bid bond to enter and a performance bond to execute — the two guarantees hand off to each other as the project moves from procurement to delivery.
How they work together in a tender
In a typical public tender the two bonds run in sequence. First, every bidder submits a bid bond alongside its offer. This proves the bid is serious and gives the owner recourse if the winner later refuses to sign. Bids without a valid bid bond are usually disqualified.
When the owner selects a winner, that bidder signs the contract and replaces the bid bond with a performance bond. The bid bond then expires, having done its job, and the performance bond takes over for the rest of the project — guaranteeing completion through to handover and, where required, the defects period.
Because the same underwriting supports both, contractors that plan ahead line up their bid bond and performance bond capacity together. Doing so keeps them eligible to bid and ready to execute the moment they win, without freezing cash as collateral. ERGO issues both as surety bonds, underwritten on the applicant's financial capacity.
Frequently asked questions
Is a bid bond the same as a performance bond?+
No. A bid bond guarantees that a winning bidder will sign the contract and post the required bonds during the tender phase. A performance bond guarantees that the contractor then completes the work per the contract during the execution phase. They cover different phases and are triggered by different events, but both are surety bonds protecting the project owner.
Do I need both a bid bond and a performance bond?+
On most public tenders, yes. The owner usually requires a bid bond to submit a bid and, once you win, a performance bond to sign the contract and start work. The bid bond secures your promise to take the contract; the performance bond secures your promise to deliver it. They complement each other across the two project phases.
Which comes first, the bid bond or the performance bond?+
The bid bond comes first. You post it with your offer during the tender phase. If you win and sign the contract, you replace the bid bond with a performance bond for the execution phase. The bid bond then expires, and the performance bond stays in force through delivery.
What triggers each bond?+
A bid bond is triggered if the winning bidder refuses to sign the contract or fails to provide the required bonds. A performance bond is triggered if the contractor defaults on the work — abandoning it, failing to meet the specification, or becoming insolvent. In each case the owner files a claim and the surety investigates before paying.
Who pays for a bid bond and a performance bond?+
The bidder or contractor (the principal) pays the premium for both bonds. The project owner (the obligee) is protected but does not pay. If a valid claim is paid, the surety recovers the amount from the principal under the indemnity agreement, so the principal ultimately bears any loss.
How much do a bid bond and a performance bond cost?+
Both are priced as an annual rate on the bonded amount, typically 0.5%–5% per year. The exact rate depends on the applicant's risk profile and financial capacity. Bid bonds cover a smaller amount (often 1–10% of the bid), while performance bonds cover a larger amount (often 10–100% of the contract), so the premium in currency is usually higher for the performance bond.
Bid and deliver without freezing your cash
ERGO issues bid bonds and performance bonds underwritten on your financial capacity — not on pledged collateral. Get a tailored quote or talk to a specialist.