How Much Do Bid Bonds Cost?

Most bond brokers and surety bond companies do not charge for bid bonds. Bid Bonds are often done as a service by both surety bond companies and bond brokers in return for making money on other contract bonds such as Performance Bonds and Payment Bonds. However, there are exceptions which can be found below. 

Estimating with Bid Bonds

Bid Bonds act as a form of prequalification. They guarantee that a contractor will enter into a contract if they are the lowest qualifying bidder. However, a bid bond also guarantees that the contractor will post performance bonds and payment bonds if they are required to do so. You can learn more about the differences between bid bonds and performance bonds here. 

While the marketplace typically does not charge for bid bonds, there is a charge for both performance bonds and payment bonds. Therefore, a contractor needs to know those costs before submitting their bid. While bid bonds do not typically cost money, it is a good practice to obtain a contractor’s performance and payment bond cost for the project before bidding. This way, the contractor can include those costs in their bid. You can read more about performance bonds and payment bond costs here. 

Exception to Free Bid Bonds

As mentioned earlier, bid bonds are typically free. However, there are some exceptions. These may include infrequent and unsuccessful bidders, prequalification only, and specialty programs.

Infrequent and Unsuccessful Bidders

I once worked with a large school bus contractor who would have to submit a bid bond for a school district once per year. The contractor had significant financial strength and capabilities. The problem was that they had many entities, a complicated ownership structure and never generated a single dollar of revenue. After a number of years of providing bid bonds at no cost to the contractor, the surety bond company came to us and suggested that we charge an annual fee for our joint efforts. We declined to charge our contractor and moved them to a different bond company. However, this is an example of when an infrequent bidder may be charged for bid bonds. 

In a similar but different manner than the bus company, we worked with a General Contractor who needs bid bonds frequently. In fact, this contractor bid several projects each week that required bid bonds. However, this contractor was never successful on his bids. This process went on for over a year before the bid bond company asked us to charge the account. Once again, we moved the contractor to another bond company, but this is an example of how a frequently unsuccessful bidder could be charged for bid bonds. 

Prequalification Only

Certain project owners and general contractors have received a reputation for using bid bonds as a free prequalification service. This is generally frowned upon in the surety industry. It is likened to contractors or owners receiving bids from other contractors and giving their numbers to a contractor of their choice. The point is that somebody is spending time and effort with no ability to get paid for their work. In these scenarios, a particular contractor or owner may be charged for bid bonds. In reality, this almost never happens though. Such requirements penalize the contractor needing bid bonds and not the project owner or general contractor in most cases. 

Specialty Programs

Some specialty programs may charge for bid bonds. When small, credit only surety programs started appearing, it was common to charge the contractor a fee per year to issue bid bonds. Generally, the cost was minimal and went toward the performance bond or payment bond if the contractor was selected. However, the cost helped pay for some of these programs. Currently, the fee tied to those programs has vanished, but other specialty programs could arise and charge similar fees for bid bonds. 

Other Fees

Electronic bid bonds are becoming more widely used. Although not a direct bid bond costs, some of these programs are administered through online providers such as Surety2000, Erlon and others. These programs typically carry an annual fee that can add to a contractor’s overall bond cost.

Summary

Bid Bonds are almost always free. There can be some exceptions, but most contractors should not pay for bid bonds. In this marketplace, there are many surety bond companies and brokers willing to write bid bonds for free. They should account for the cost of other bonds when using bid bonds, however. Contractor can learn more frequently asked questions about surety by visiting the FAQ Page.

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Josh Carson, AFSB

Vice President at Axcess Surety

Vice President of Axcess Surety. Surety Bond and financial expert dedicated to helping contractors, businesses and individuals understand and obtain surety bond credit.

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