Difference Between A Bid And Performance Bond

The construction industry involves large contracts, particularly the ones involving public works like building roads and bridges. Surety bonds are usually required to insure these projects in case of non completion. Bid bonds and performance bonds are the most well-known types of construction surety bonds. The main purpose of both these bonds is to protect the project owner in case of non-fulfillment of the contract. Moreover, these bonds indicate the financial stability and credibility of the contractor.

Non-fulfillment may be due to failure to complete the construction. It may also happen when the contractor fails to fulfill the contract specifications related to the quality and time span of the construction.  Whatever may be the reason, non completion can cause huge financial losses to the project owner. Surety bonds play a key role in the construction projects as they cover the risk of losses for the project owner. The purpose of bid bonds and performance bonds is similar yet there are some differences between these two. Let’s try and understand this difference in detail.

All About Bid Bond

A bid bond is primarily a construction surety which a contractor agrees to pay to get a construction project. Before starting a big construction project, the project owner invites various contractors to make a bid. Each of the competing contractors comes up with a bid and quotes the cost and time frame for the project. This bid is to be back by a bond, which is known as a Bid Bond.

The project owner goes through the bids made by contractors and chooses the one that quotes an optimal cost, time frame, and quality of work. The contractor chosen has to abide by the specifications in the Bid Bond and complete the project accordingly. In case he is not able to deliver, the project owner can rightfully claim the value of the Bid Bond. In this way, a Bid Bond is a surety that makes up for the loss of time and money for the project owner.

All About Performance Bond

A Performance Bond is a surety bond that guarantees the completion of the project on the behalf of the contractor. The contractor purchases this bond from a surety, usually an insurance company or a bank. The surety assures the project owner that the contractor will complete the project under the contract stipulations.

If the contractor fails to do so, the responsibility will fall on the surety. In such a case, the project owner will be entitled to claim the bond value from the surety company. The latter will have to get the project completed directly or through the client. It is to be noted that the contractor will need to get the performance bond only if he qualifies for the bid through the Bid Bond. In other words, it is a bond that only the winning bidder has to submit.

Both, Bid Bond and Performance Bond are important for contractors but they cover different aspects of the construction surety. While a Bid Bond is needed by all contractors bidding for a job, Performance Bond is only required by the one who secures the contract. To know more about the various kinds of surety bonds, visit https://swiftbonds.com/performance-bond/.


Charles Y.

Charles has been working as a webmaster since 1998. Since then, he has had his hands in thousands of websites and has helped millions get online through a company he partially owns called Web Host Pro.

Leave a Reply