Bid Bond
If you are working on a public construction project, it is crucial to understand the different types of surety bonds. The construction industry appoints over 1.4 million people in Canada and generates about $141 billion to the economy annually.

Hence, what is bid bond, and why is it paramount in the construction industry?

Bid bond is a type of construction bond typically required from every general contractor bidding on public projects. It is created to protect the contracting entity, the project owners, from any ill-considered bids.

Bid bonds are generally used in construction projects which require a bid-based process. Read further to know more about bid bonds and their purpose in today's construction jobs.

When is a Bid Bond Needed?

If you are a contractor, you need to bid on potential projects to sustain your livelihood. Here is where a bid bond works.

A bid bond includes an obligee (the project owner), the principal (contractor), and the surety agency.

Through a bid bond, the principal can agree upon a price for a project with the owner. The contractor with the lowest bid is handed over the project and is in charge of finishing it.

It is generally needed for big projects, such as commercial developments and housing. Moreover, the bond acts as a financial deposit for both the contractor and the owner.

Without abiding by the bond, a contractor's bid can get disqualified from the bidding process. Agreeing on bid bonds is essential to safeguard both parties' economic rights while undertaking large-scale construction projects.

How do bid bonds work?

If you intend to bid on public work projects, you must secure a bid bond.

This bond promises that if the bid is selected, the contractor accepts the job and will perform it for the price bid. However, what is a bid bond in terms of protection for the owner?

It ensures compensation to the owner when the bidder fails to enter into an awarded contract. It assures the project owner that the bidder will undertake the contract in hand.

Bid bonds are usually acquired from a bank or an insurance company.

But what are the added benefits of signing a bond?

  • Security: Signing a bid bond will assure safety to the project owner and the contractor. Most owners choose contractors who have signed a bid bond. It gives them certainty over contractors who have no bonds in place.
  • Guaranteed Services: The winning bidder guarantees to undertake the contract under the terms discussed through a bid bond. Suppose they fail to conduct the project work; they are expected to make a full or partial payment to the owners.
  • Client Confidence: The majority of the project owners are comfortable accepting the bids from contractors who have bid bonds. It gives them a sense of financial assurance even when the bond breaks under any circumstances.


Budding contractors should grab potential construction projects for attaining income and experience. Bid bonds are a way to win clients' attention and make your bidding process smooth.

Bidding requires the necessary tactics and market knowledge to bid your best price. Even if you are in a quest to bid for a well-established project, always understand the terms thoroughly.