You’ve found a public works project you want to bid on, the bid documents say you need a bid bond, and you’ve never gotten one before. Welcome to surety bonds. The good news: getting your first bid bond is more straightforward than the legalese makes it sound. The other good news: once you’re bonded, getting bonded again is faster every time.
If you’ve already got a deadline closing in and want to move now, call us at 800-333-7800 or request a free quote online. Otherwise, here’s the walkthrough.
A quick refresher on what a bid bond does
A bid bond is a surety bond that guarantees you’ll honor your bid if you’re awarded the contract. If you submit the winning bid and then back out (or refuse to provide the required performance and payment bonds), the project owner can claim against the bid bond to cover the cost of going to the next-highest bidder.
It’s a three-party arrangement: you’re the principal, the project owner is the obligee, and the surety company stands behind your obligation. For a fuller explanation, see our bid bonds page.
Step 1: Read the bid documents carefully
Before you do anything else, find the bid security section in the bid documents. It will tell you:
- The bond amount or percentage. Most bid bonds are 5% to 20% of the total bid amount. Federal jobs under FAR Part 28 are typically 20% of the bid or $3 million, whichever is less.
- The form required. AIA A310 is common on private and AIA-administered projects. Federal jobs use SF24 (Standard Form 24). State and municipal jobs often have their own forms.
- The deadline for submitting the bid. This is your underwriting clock. Work backward.
- Whether the bond can be substituted with cash, a certified check, or a letter of credit. Some obligees allow alternatives, others don’t.
Get all of this in front of you before you call a surety agent. The faster you can answer questions about the project, the faster the bond gets issued.
Step 2: Understand what underwriters look at
Surety underwriting is credit underwriting, not insurance underwriting. The surety carrier wants to know that you can perform if you win the bid. For first-time applicants, they typically review:
- Personal and business credit. Owners and guarantors will be checked.
- Financial position. Working capital, net worth, and assets minus liabilities.
- Work experience. Past projects, completion record, and the kind of work you’ve done.
- Project size relative to your history. Are you bidding on a job five times bigger than anything you’ve ever done? Underwriters notice.
- References. Subs you’ve worked with, suppliers, banks, prior obligees.
For smaller bonds, the application can be relatively simple. Larger bonds usually require CPA-prepared financial statements and a more thorough review.
Step 3: Gather your documents
Before you apply, pull together:
- Business and personal financial statements
- Tax returns (often two to three years for the business and the owners)
- A list of completed and current projects
- Bank and supplier references
- Your contractor license information
- The bid documents and bond form requirements
If you don’t have CPA-prepared financials yet, that’s not necessarily a deal-breaker for a first bid bond on a smaller project, but it’s worth thinking about for the future. As your bonds grow, your underwriting requirements grow with them.
Step 4: Apply through a licensed surety agency
Bid bonds aren’t sold by every insurance broker. You want a specialty surety bond agency that has direct relationships with surety carriers. We work with all the major surety markets and we know which carriers have appetite for first-time applicants, smaller projects, and contractors with non-standard credit profiles.
When you call, be ready to share:
- Project name and obligee
- Bid amount and bond percentage required
- Bid deadline
- Bond form (or a copy of it)
- Brief overview of your business and finances
A good agent will tell you within a short conversation whether you’re likely to qualify and what you’ll need to provide.
Step 5: What to expect on cost and timing
A few things every first-time applicant should know:
- Most standard bid bonds carry a flat issuance fee. It’s usually a modest fee per bid.
- The fee is often waived if you write the performance bond on the awarded contract. At Surety Bond Authority, we waive the bid bond fee when we issue the performance and payment bonds on the project.
- Larger bonds may be priced as a percentage of premium. Pricing depends on your specific situation, so we’ll give you a real number when you call.
- Annual premium, paid upfront. All of our bonds are paid as a single annual premium. We don’t offer monthly payments.
- Timing varies. A clean file with simple financials can often be issued the same day. A larger or more complex bond may take a few business days.
For a real cost estimate, call 800-333-7800. We can usually quote within hours.
Step 6: Submit the bond with your bid package
Once the surety issues the bond, you include it with your bid documents. Some obligees require an original signed bond; others accept a digital copy. Read the bid instructions and follow them exactly. A bid that’s missing the bond (or that has the wrong form) can be disqualified before anyone reads what you’ve offered.
What if you’re declined the first time?
It happens. A first bid bond decline isn’t the end of your bidding career, and it doesn’t always mean your numbers are wrong. Common reasons:
- The bond size is too large relative to your work history
- Personal or business credit needs a closer look
- The financials submitted weren’t strong enough for the bond requested
- The project type is outside your prior experience
If you’re declined, ask the agent why. A good agent will tell you what to fix and walk you through whether the SBA Surety Bond Guarantee Program (more on that below) might work for you.
Building bonding capacity over time
Bonding capacity is the maximum dollar value of work a surety will bond you for. For a brand-new contractor, capacity might start modest. As you complete projects, build a track record, and grow your financials, capacity grows.
A few practical ways to build capacity:
- Stay on top of your financial reporting. Annual CPA-prepared statements help.
- Keep your work history clean and documented.
- Build a relationship with a single surety agency. Sureties give better terms to contractors they know.
- Don’t bite off more than you can chew. A botched project hurts your record for years.
The SBA Surety Bond Guarantee Program
If you can’t qualify on the standard market for your first bid bond, the U.S. Small Business Administration runs a Surety Bond Guarantee Program that helps small contractors get bonded on public projects. Under the program, the SBA guarantees a portion of the bond, which gives the surety carrier the comfort to issue.
This is a real tool that opens doors for small contractors. Read about the program at SBA.gov’s surety bonds page. We work with this program regularly. If you think it might apply to you, just ask.
Frequently Asked Questions
Can I get a bid bond if I’ve never had one before?
Yes. We work with carriers who handle first-time applicants regularly. The application is straightforward for smaller bonds, and we’ll let you know upfront whether you’re a fit.
How much does a first bid bond cost?
Most standard bid bonds carry a flat issuance fee. Larger bonds may be priced as a percentage. Every situation is different. Call 800-333-7800 for a real number on your specific bid.
How fast can I get my first bid bond?
Same day in many cases for smaller bonds with clean files. Plan on one to a few business days for larger or more complex applications. Call us early if you have a deadline.
Do I need CPA-prepared financials for my first bid bond?
Not always. Smaller bonds often don’t require CPA financials. As bond size grows, requirements grow with them. We’ll tell you what you need based on the specific project.
What if I’m declined for my first bid bond?
A decline isn’t the end of the road. Sometimes it means looking at a different carrier, sometimes it means trying through the SBA Surety Bond Guarantee Program, and sometimes it means improving the application before resubmitting. We’ll talk you through it.
What happens to the bond if I don’t win the bid?
If you’re not awarded the contract, the bid bond simply becomes void. There’s no refund of the issuance fee, but no further premium is owed either.
Get bonded on your first bid
Surety Bond Authority has been writing bonds since 1971. We’ve taken plenty of contractors through their first bid bond and watched them grow into nine-figure bonding programs. Whether you’re a one-person operation chasing a school district remodel or a growing GC entering public works for the first time, we’ll meet you where you are.
Call 800-333-7800 to talk to a licensed bond agent, or request a free quote online. You can also email info@suretyauthority.com or contact us through the website.
