contractor holding his bid documents for tender date


The construction business is much more complicated than one might imagine. When most people think about construction projects, they just think about the party doing the work and the party receiving the work.

These are usually the two parties involved in the project, but there is a lot more to it than just one entity hiring the other. No, there are bonds, bids, and contracts that have to be taken out, fulfilled, and met.

This is especially true when it comes to the commercial, industry, and government sectors. Just take the big bond for instance. This is a type of construction bond that is usually taken out to protect the owner or developer in a construction project.

It ensures that the bidder of the project provides the project owner with the terms that were agreed on during the bidding process. A bond like this is one that is usually issued through an insurance or surety company like Stokes Surety Bonds.

These types of bonds really help guarantee that the contractor is financially stable enough with the necessary resources to take on the project.

You can just about guarantee that if a bid bond is required for a project, a performance and payment bond will be required as well.


The first thing that you need to understand about a bid bond is that it is one that usually involves three different parties.

These parties will be the obligee, the principal, and the surety. The obligee is the owner or developer of the project. This is the individual or individuals that are requiring the bond to be issued.

The principal, on the other hand, is the party that will obtain and pay for the bond, This is usually the construction company.

The last party involved is the surety or insurance company. This would be a company like Stokes Surety Bonds that issues the bond and covers financial compensation if the terms of the contract are not met.

The principal will purchase the bond from the surety company for a specific price after meeting specific requirements. This is much like a premium for an insurance policy. The overall coverage value of the bond is referred to as the penal sum and it represents the maximum amount of damages that the surety or insurance company will cover. While penal sums can vary from issuing party or issuing party, they are usually only issued from 5 to 20 percent of the amount of the bid.  

To learn more about this in detail, please take a look at the following links:

Meaning of Bid Bonds

Purpose of Bid Bonds

Bid Bonds in Construction


Just about any time a construction project is taken on, there will be a bidding process. This is a process in which contractors from different companies bid on a project. It is usually the lowest bidding party that is provided with the contract.

During a construction bidding process, different companies will estimate how much they will charge to complete a specific job. This bid bond ensures that the issuer of the big sticks to the terms of the bid. For instance, if a company says that they complete a project for $100,000, the bid bond will ensure that the company completes the project for $100,000.

Once the contract is signed, such bonds prevent companies from raising the price. If the contract is broken if the principal does change the bid, the bid bond owner will have to compensate the owner for the cost difference between the initial bid and the next-lowest bid. There are times when the surety agency might sue the contractor to recover these costs.  

To learn more about this in detail, please take a look at how does a bid bond work?


At this point, you can already see just how important the bid bond is. This is why it will be pertinent to require one if you are getting work done. It will also be pertinent to take out such bonds if you are undertaking a project because it can prevent you from getting sued.

Despite what you might believe, the bid bond can protect both parties. That aside the cost of the bid bond is one that is covered by the contractor or the principal. Unfortunately, it can be hard to say straight up how much one of these bid bonds will cost, or the asking price of bid bonds. And, this is because the issuing parties based the costs on various factors. 

Some issuers might base their prices on the contractor’s experience. Things are very different for contractors with no previous surety bonding history. Some might focus more on the type of project the contractor is undertaking or the cost of the project. For smaller projects, contractors might end up paying anywhere from $100 to $200. As far as larger projects go, these costs are usually based on a percentage of the overall job.

The penal sum for public or non-federal projects can range anywhere from 5 to 10 percent of the total project. For federal projects, the principal might have to pay as much as 20 percent. For instance, if a project totals $500,000 and the penal sum is $50,000, the contractor will end up paying anywhere from $500 to $2,500 for the bond.  


It is the Miller Act that is responsible for the requirement of such bonds. The government issued the Miller Act, which is standard today when it comes to bidding on contracts. The Miller Act states that any company bidding on a project today must take out a bid bond. While this is always true for federal projects, it might vary from public and commercial jobs.

However, there are a lot of private firms that have adopted these requirements just to protect themselves from inherent risks during the bidding process. As a construction company today, you want to be as competitive as possible. Competitive not only in your pricing but competitive in the types and quality of services that you deliver.

Bid bonds are without a doubt one of the best ways to do this. So, even if the parties of the bid do not require a bid bond, it might be a good idea to take one out anyway. This is because these types of bonds give the obligee assurances that you and your company will stick to your word. It pretty much guarantees that your company is going to deliver on what they agreed on. 

That being said, there are some instances where these types of bonds are required before a company can get issued licenses and permits that are pertinent for jobs. In federal projects, there might also be other requirements for a bid bond. One requirement might be that the surety bond is issued through an approved corporate agency. While there are tons of surety agencies out there like Stokes Surety Bonds, not all of them are federally approved.  

To learn more about this in detail please take a look at how to obtain a bid bond, and the  turnaround time of a bid bond.