How a bid bond works
The bid bond is the first surety instrument most contractors ever touch. The owner wants two things from it: proof that a surety has already qualified the bidder, and protection if the low bidder walks away after the opening. If that happens, the owner can claim the lesser of the bond amount or the difference between the defaulting bid and the next lowest bid it accepts. The surety pays the owner and recovers from the contractor under the indemnity agreement.
For your client, the bid bond is a filter they want to pass. A bidder that cannot produce bid security is usually disqualified before the envelopes are read.
How much the bond is for
The CCDC 220 form set 10% of the bid as the standard, and most tenders use it. Owners can ask for anything from 5% to 15%, and the tender package controls. Read the bid security clause and send it with the file. If the owner wants a certified cheque or a letter of credit instead, your client is tying up cash that a bid bond leaves in the business.
The premium for a bid bond is small relative to final bonds, and many sureties issue bid bonds under a facility without a per-bond charge. We confirm the arrangement when the facility is set up.
Bid bond, consent of surety, pre-qualification letter
Three documents travel together at tender time, and brokers new to surety mix them up.
- Bid bond. A real bond, signed by the contractor and the surety. The owner can claim on it.
- Consent of surety (agreement to bond). Signed by the surety only. It says the surety will issue the performance and labour and material payment bonds if the contractor is awarded the contract. It is not a guarantee that the contractor will sign, and it is not a bond.
- Pre-qualification letter. The surety confirms the contractor is bondable, usually at the RFQ or expression-of-interest stage. Not binding, not a bond.
A tender that asks for "bid security" usually means a bid bond. One that asks for "agreement to bond" means the consent. Many ask for both. Our tender bonds page walks through how to read the package.
Why the facility matters more than the bond
A bid bond on its own is simple to issue. The work is in qualifying the contractor behind it. Once a bonding facility is in place, with single-job and aggregate limits set from the file, bid bonds and consents issue on request for the life of the facility. Without one, every bid is a full underwriting review against a closing date.
If your client is bidding bonded work for the first time, start the facility conversation now, not the week of the tender.
What happens if the contractor backs out
Bid bond claims are rare but real. The usual cause is a pricing error: the contractor realizes after opening that the bid is too low to perform. The owner claims the gap to the next bidder, up to the bond amount. The surety pays and the contractor repays the surety. Good estimating and a realistic read on the contractor's capacity before bid day are the best protection, and both are part of what the underwriter is checking.
After the award
If your client wins, the award letter sets a window, often a matter of days, to sign the contract and deliver the performance bond and labour and material payment bond. Because the consent of surety was issued with the bid, the final bonds follow from the same file. Tell us the award date the day you hear it.
