Wanna bid on that big construction project?
Ah-hah! We all want to bid on those high-dollar federal, state and municipal contracts. After all, that’s how we get big jobs, that keep our employees working, and pay the bills. But then we come across some bid bond on the form and we have no idea what it means.
Bid bonds. Enough said, right?
You have bigger fish to fry, they seem like another insurance company fishing for your money, and in reality, many contractors don’t even know how they work.
Without the right bid bonds, you’ll never be qualified in the first place.
For contractors who have never had to deal with bid bonds, it can be pretty intimidating. But understanding the bid bond requirements to work on federal, state, and local government projects is essential if you want to win that business.
Fortunately, it’s actually not that difficult once you break it down…
What you will learn:
- What Are Bid Bonds and Why You Need Them?
- Federal Bid Bond Requirements Under the Miller Act
- State and Local Bid Bond Requirements
- The Bid Bond Application Process
- Common Mistakes and Questions About Bid Bonds
Let’s get started…
What Are Bid Bonds and Why You Need Them?
A bid bond is a promise to an owner that if you get the bid, you can go out and get performance and payment bonds, and you can do the work for the price you quoted.
It’s really not any more complicated than that.
Ok, let me give you an example of what would happen if you just never bid in the first place.
The owner gets bids from ABC Contractors and XYZ Contractors. XYZ Contractors offers to do the work for less money so the owner gives the job to XYZ Contractors. Now XYZ Contractors can’t go out and get performance and payment bonds (or worse yet, they found out they underbid the job). Who does that leave out in the cold? The owner!
Bid bonds are there to protect the owner from someone like XYZ Contractors.
Contract surety bonds market size was worth $22.33 billion in 2024 and is expected to reach $33.15 billion by 2032. Annual compound growth rate of 5.60% from 2025 to 2032.
Bid bonds themselves are just part of the bonding process. Surety bonds dominated the market share at 58.24% in 2024, with Performance bonds coming in at 28.12% market share and Labor & Material payment bonds at 13.64% share.
The nice thing is that bid bonds usually cost around $100 but many surety companies offer them completely free of charge for qualified contractors. Why? Because the surety has little to no risk on the bid bond itself.
Federal Bid Bond Requirements Under the Miller Act
If you want to work on any government projects, it’s important to know about the Miller Act.
Signed into law in 1935, the Miller Act is what makes sure the federal government is protected in the event a contractor submits a low-ball bid, or worse, doesn’t perform the work as promised. In 2010, the threshold increased from $100,000 to $150,000 due to inflation.
So what does the Miller Act actually require?
For any federal construction project over $150,000, a contractor must provide both performance and payment bonds. But the catch is that in order to even get those performance and payment bonds, a contractor must first submit a bid bond with his or her proposal.
Now there are a few exceptions to the rule:
- Work performed in a foreign country (if it is determined that it is impractical to do so)
- Emergency management and debris removal
If the contract is between $35,000 and $150,000, the government must provide at least two payment protection options.
The required bond amount is typically 20% of the bid price up to a maximum amount of $3 million. This means if you submit a $200,000 bid on a construction project, you will need a $40,000 bid bond.
State and Local Bid Bond Requirements
As you may have guessed, every state has a Miller Act “look-alike” law, known as the “Little Miller Act”.
Many state laws vary greatly from the federal requirements and you should not assume that because you understand the federal bonding process that it will be the same for your state.
Some states have thresholds as low as $25,000 while others require bonds for much larger projects.
Examples:
- Virginia requires bonds for construction contracts of more than $500,000
- Transportation projects in Virginia need bonds for more than $350,000
- Some bonds have as little as 75 days to file claims, and others have one year
For the most part, private project owners will also require a bid bond.
Don’t assume. Ask the owner of the job what their bonding requirements are and go from there.
The Bid Bond Application Process
Getting a bid bond is one of the easiest types of bonds a contractor can get.
This is especially true for smaller, more personal projects where the contractor can get approved based on personal credit history alone. Larger bonds will require financials and some experience history as well.
Some of the information a surety company will need to issue a bond:
- Completed bond application
- Details about the project from the owner
- Financial statements (for larger bonds)
- Personal credit info
It takes only a few minutes to fill out an application online and many surety companies will have a digital copy of the bond available immediately after the approval process.
Best practice is to develop a relationship with a surety provider before you need a bid bond.
Common Mistakes and Questions About Bid Bonds
Most bid bond issues result when contractors don’t understand the application process.
Top mistakes I see as an owner and surety agent:
- Contractors wait until the last minute to get their bid bond: I have contractors calling the day before a bid is due. Don’t do this. Apply at least 48 hours in advance to account for any delays.
- Contractors don’t read the bond forms carefully enough: Each form will have specific instructions and guidelines and may require special conditions.
- Contractors think all bid bonds are the same: Each federal, state and private project will have its own bonding requirements.
- Contractors think they can get any amount of bonding because the bank said it was okay: Your surety will only qualify you for bonds up to a certain dollar amount. Make sure you have the capacity for the job.
- Contractors have poor credit history and/or financial record keeping: Sureties want to know you can manage your money. Messy books and a poor credit score means your rate will be higher or worse, you may not qualify for the bond.
The default rates by state for highway construction ranged from 0.34% to 0.69% with an average of less than 1% across the United States. This is good news as most contractors do what they promise to do on their bid bonds.
Wrapping Up The Process
Bid bonds themselves are really just a small part of qualifying to work on a project.
The Construction industry has over 8.3 million people working in it and contributes about 13% of world GDP. Infrastructure projects are only increasing across the globe so getting to play in that arena should be one of your biggest goals.
This is what you should remember from this article:
- Federal construction projects over $150,000 require Miller Act Bonds
- State and local requirements are different and need to be researched
- Bid bonds typically only cost $100 or are free
- It pays to have good relationships with your surety providers
- Don’t wait until the last minute to apply for bid bonds
The surety industry has been protecting owners and construction projects for decades now. By embracing this process instead of fighting against it, you put yourself in the best position to win more business, and in turn, grow your company.
Bonding is not something you just go out and do to meet a requirement. It’s a process that helps demonstrate to owners you are a serious, qualified contractor who can be trusted with taxpayer dollars and major construction jobs.
