# Bid Bonds: What the Bidder Promises, How the Amount Is Set and What Refusing the Award Costs URL: https://mycontractorsinsurancequote.com/construction-surety-bonds/bid-bonds Updated: 2026-10-29 · Reviewed by the Principal, Gleason Insurance Brokers, LLC Publisher: My Contractors Insurance Quote, a website of Gleason Insurance Brokers, LLC A bid bond is the surety's written backing of a bidder's promise that, if its bid is accepted, it will sign the contract and furnish the required performance and payment bonds. The penal sum is set by statute or the bid documents, at least 10 percent of the bid on California city work, 10 percent on Arizona public work, 5 percent where a Texas county requires one and at least 20 percent (capped at $3 million) on federal work. If the low bidder refuses to sign, the owner can look to the bond for the forfeited amount or its excess cost of awarding to someone else, and the surety then turns to the bidder and its indemnitors for repayment. ## Key Decision Points - A bid bond backs two promises: to sign the contract and to deliver the performance and payment bonds the contract requires. - The penal sum comes from the statute or the bid documents rather than from the surety, and it differs by owner type and state. - California city law forfeits the full security amount, Arizona's statutory form measures loss as the price difference up to the penal sum and federal rules charge the excess cost of reprocurement. - A bid mistake does not release the bidder by itself; California requires written notice within five working days after bid opening and proof the error was clerical. - Issuing a bid bond tells the owner the surety is prepared to consider the final bonds, so the surety reviews the job before bid day. ## What a Bid Bond Promises, and to Whom A bid bond names the bidder as principal, the agency or owner soliciting bids as obligee and a surety that backs the bidder's offer. The condition is narrow: if the owner accepts the bid within the period allowed, the bidder enters into the contract on the terms it bid and delivers the performance bond, payment bond and insurance certificates the bid documents require. If the bidder does both, the bond is void. If it does not, the owner has a claim on the bond up to its penal sum. Arizona's statute spells the condition out. Under A.R.S. §34-201, the surety bid bond for covered public work is void if the principal enters into the contract and gives the bonds and certificates of insurance specified in the standard specifications. If the principal fails to do so, it owes the difference, not exceeding the penalty of the bond, between its bid and the larger amount for which the agency may in good faith contract with another party. Like every construction bond, the bid bond is credit, not insurance. The surety is lending its balance sheet to the bidder's promise, and the general indemnity agreement the bidder signed obligates the company and its owners to repay anything the surety pays on the bid bond, plus the surety's costs. A forfeited bid bond is therefore a debt of the bidder, delivered through the surety. The bid bond is the first instrument in a sequence described on the page about [construction surety bonds for public and private projects](https://mycontractorsinsurancequote.com/construction-surety-bonds). ## How the Penal Sum Is Set by Owner Type and State The amount of a bid bond is a policy choice made by the legislature or the owner, and it is stated in the invitation for bids. It is usually a percentage of the total bid, so a bidder submitting alternates or unit prices should confirm which number the percentage applies to before the bond is executed. A bond written for the wrong amount, to the wrong obligee or without the surety's power of attorney can make the bid nonresponsive. The four rule sets this site's buyers meet most often differ in amount, in the forms of security accepted and in who may write the bond. Agencies can and do add requirements in their own bid documents, so the statute sets the floor and the bid package sets the actual terms. - California cities: bids are accompanied by cash, a cashier's or certified check or a bidder's bond executed by an admitted surety insurer, and the security is at least 10 percent of the amount bid; a bid without it is not considered (Public Contract Code §20170 and §20171). - California counties: construction bids carry the same four forms of security, and the county returns an unsuccessful bidder's security within a reasonable period, never more than 60 days after award (Public Contract Code §20129). - Texas counties: for public works or contracts over $100,000, the bid specifications may require a bid bond of 5 percent of the total contract price, executed by a surety company authorized to do business in Texas (Local Government Code §262.032). - Arizona agents: every proposal carries a certified check, cashier's check or surety bond for 10 percent of the bid, and the bond must come from a surety holding an Arizona certificate of authority, never an individual surety (A.R.S. §34-201). - Federal contracts: a bid guarantee is required whenever a performance bond or performance and payment bond is required, in an amount of at least 20 percent of the bid price but not more than $3 million (FAR 28.101-1 and 28.101-2). The performance and payment bonds that follow the bid bond are summarized under [public works bond requirements and thresholds](https://mycontractorsinsurancequote.com/construction-surety-bonds/public-works-bond-requirements). ### Illustrative scenario: A Paving Bid That Came in Far Below the Field Ridgeback Civil, a fictional paving and storm drain contractor, bids $2.4 million on a general law city's arterial rehabilitation project in California with a 10 percent bidder's bond. At opening, the next bid is $2.95 million. Reviewing its sheets that afternoon, Ridgeback's estimator finds that one tab carried a single-day production quantity for asphalt grinding instead of the full quantity. Ridgeback sends the city written notice two working days after opening, attaching the original takeoff and the summary sheet that failed to pull the correct total, and calls its surety that afternoon. The city declines to release the bid and awards to the second bidder, and the $240,000 bid security is forfeited under the city's rules. Ridgeback's counsel files within the 90-day window to recover it, arguing the error was clerical rather than a misjudgment of production. Whatever the outcome, Ridgeback is barred from rebidding that project, and its surety asks for an explanation of the estimating controls before supporting its next bid. ## When the Low Bidder Will Not Sign: Forfeiture, Price Difference or Excess Cost What the bidder owes when it walks away depends on which rule governs. In a California city under Public Contract Code §20172, if the successful bidder fails to execute the contract, the amount of the bidder's security is forfeited to the city, subject to the relief-of-bidders procedure. Section 5106 lets the agency award to the second-lowest bidder and then the third, and the security of a second or third bidder who also refuses is forfeited the same way. Section 5105 bars a bidder that claims a mistake or forfeits its security from bidding again on that project. Arizona's statutory form takes a different measure. The surety's obligation is the difference between the defaulting bid and the larger amount the agency pays in good faith to another contractor, capped at the bond penalty. A bidder that was low by a small margin may owe little; one that was far below the next bid may owe the full penal sum. On federal work, the bid guarantee clause at FAR 52.228-1 gives the successful bidder 10 days after it receives the forms to execute the contract documents and furnish executed bonds. If it fails, the contracting officer may terminate the contract for default, the bidder is liable for any cost of acquiring the work that exceeds its bid, and the bid guarantee is available to offset the difference. In each case, whatever the surety pays comes back to the bidder under the indemnity agreement. The bid bond is usually satisfied by delivering the [performance bond the winning bidder must deliver](https://mycontractorsinsurancequote.com/construction-surety-bonds/performance-bonds). ## Bid Mistakes and Relief of Bidders in California A math error on bid day does not by itself release the bidder or its bond. California's relief-of-bidders chapter states that a bidder is not relieved of its bid without the awarding authority's consent and that no change may be made in the bid because of a mistake. The bidder's remedy is to sue the public entity to recover the forfeited amount, and the complaint must be filed and served within 90 days after bid opening. A bidder that loses the suit pays the entity's costs, including a reasonable attorney fee set by the court. To win, the bidder must show four things under Public Contract Code §5103: a mistake was made; it gave the public entity written notice of the mistake within five working days after bid opening, excluding weekends and state holidays, explaining in detail how it occurred; the mistake made the bid materially different than intended; and the error happened in filling out the bid, not through an error in judgment or carelessness in inspecting the site or reading the plans and specifications. A missed quantity on a takeoff sheet is a different argument from a misjudged production rate. In practice, the estimator's working papers decide these disputes. Contractors that keep dated takeoffs, subcontractor quotes and the spreadsheet as submitted are in a position to document a clerical error within the five-day window. Tell the surety as soon as a mistake is found, because the surety is the party the agency will pursue for the security. [insurance and bonding for public works contractors](https://mycontractorsinsurancequote.com/who-we-serve/general-contractors/public-works-contractors). ## How a Surety Decides Whether to Issue a Bid Bond Owners read a bid bond as a signal that a qualified surety stands behind the bidder, and sureties treat it the same way. Most will not write a bid bond on a job they would not later support with performance and payment bonds, so the underwriting happens before the bid, not after award. A contractor with an established program usually submits a short request for each bid; a first-time principal goes through the full credit review described on the surety pages before any bid bond is issued. A typical bid bond request asks for the owner and project, bid date, estimated bid amount, required bond percentage, duration, liquidated damages, retention, the scope the contractor will self-perform and the major subcontractors. Underwriters compare the job to the contractor's single and aggregate limits and to the current work-in-progress schedule. A job that would push uncompleted backlog past the aggregate, or that is a new type of work or a new state, can draw questions or a conditional approval. Some owners also ask for a consent of surety letter or a separate statement that the surety intends to furnish the final bonds if the bidder is awarded the contract. That letter is not a guarantee of final bonds; sureties condition it on the contract terms, the bidder's financial condition at award and no material change in backlog. Read those conditions before bid day. [what sureties read in a WIP schedule](https://mycontractorsinsurancequote.com/insights/what-sureties-read-in-a-wip-schedule). ## Keeping the Bid Bond from Making the Bid Nonresponsive Most bid bond problems are clerical, and agencies treat some of them as fatal. On federal sealed bids, noncompliance with a bid guarantee requirement requires rejection of the bid, though FAR 28.101-4 lists situations where the contracting officer waives it unless accepting the bid would harm the government: only one offer was received; the guarantee is short but covers the gap to the next acceptable offer; or the bond is unsigned by the offeror, misdated or undated. State and local agencies set their own rules, and many reject any irregular bid security. Arizona and California also restrict who may write the bond. Arizona requires a surety company holding an Arizona certificate of authority and bars individual sureties on public work bid bonds. California city and county bidder's bonds must be executed by an admitted surety insurer, and Code of Civil Procedure §995.311 makes the approving agency verify admitted status. Confirm that status before bid day rather than at award. For civil and underground contractors that bid many unit-price jobs, a short internal check before each bid closes most of these gaps: correct obligee name, bid date and project number, a penal sum that matches the required percentage or a fixed amount that clears it, the surety's seal and power of attorney, signatures by authorized officers and any agency-specific form the instructions require. [bonding for civil and underground utility contractors](https://mycontractorsinsurancequote.com/who-we-serve/civil-underground-utilities). ## Bid Bonds on Private and Subcontract Bids Private owners and developers ask for bid bonds less often than public agencies, but some do on large or lender-financed projects, usually to confirm a bidder can be bonded before the owner commits to a negotiated price. The terms then come from the owner's instructions to bidders rather than from statute, so the amount, the damages measure and the time to sign the contract are all negotiable and should be read carefully. General contractors sometimes require bid bonds from key subcontractors, especially for site work, utilities and paving packages that carry a large share of the prime contract. That protects the GC if a subcontractor that carried its number on bid day will not sign afterward. A subcontractor asked for a bid bond goes through the same surety review and indemnity as a prime bidder. [subdivision site improvement projects](https://mycontractorsinsurancequote.com/projects/subdivision-site-improvements). ## Before You Ask for a Quote ### What to Gather - The invitation for bids and instructions to bidders, with the bid security section marked - Any agency bid bond form the instructions require, along with the obligee name exactly as it must appear - The estimated bid amount, alternates and unit-price schedule the percentage will apply to - The contract's liquidated damages, retention, warranty and insurance requirements - The current work-in-progress schedule and backlog summary - A list of major subcontractors and whether they will be bonded to you ### What to Ask the Insurer or Surety - Does this agency accept a percentage penal sum, or must the bond state a dollar amount? - Is the surety admitted in California or holding an Arizona certificate of authority, as this bid requires? - Will the surety issue a consent letter for the final bonds, and on what conditions? - How does this job sit against our single and aggregate limits with current backlog? - What is the measure of loss under this bond form: full forfeiture, price difference or excess cost? - If we find a bid mistake after opening, who at the surety and at counsel do we notify first? ## Broker Notes **Quick Answer:** A bid bond backs a bidder's promise to sign the contract and furnish the required performance and payment bonds if its bid is accepted. The penal sum is set by statute or the bid documents, and if the bidder refuses, the surety pays the owner and the bidder repays the surety. **Common Mistake:** Treating a bid mistake as an automatic release. In California a bidder is not relieved without the agency's consent, and recovering forfeited security requires written notice within five working days of bid opening and proof the error was clerical. **Broker Perspective:** A broker reading the bid package checks the penal sum basis, obligee name, surety qualification rules and any consent-of-surety requirement, then confirms the job fits the surety program before bid day so the bond is not the last open item. **Coverage Impact:** A forfeited bid bond is not an insured loss; it is a debt the bidder and its indemnitors typically owe the surety under the indemnity agreement. A pattern of forfeitures or bid mistakes can also affect how a surety views future bid requests. ## Questions Buyers Ask ### Is a 10 percent bid bond the same as putting 10 percent of my bid at risk? It can be. Under California city law the full security amount is forfeited if the successful bidder fails to sign. Arizona's statutory form instead measures loss as the difference between your bid and the next good-faith contract, capped at the bond amount. Federal rules charge excess reprocurement cost. In each case the surety typically pays the owner first and then looks to you and your indemnitors for repayment. ### We found an error in our bid after opening. Can we just withdraw? Not on your own in California. The agency must consent, and if it does not, your remedy is a lawsuit to recover the forfeited security. You must show written notice within five working days after opening, a material mistake made in filling out the bid and no error of judgment. File within 90 days of opening, and tell your surety immediately. ### Can a Texas county require a bid bond on our project? Local Government Code §262.032 lets a county's bid specifications require a bid bond of 5 percent of the total contract price when the contract is for public works or exceeds $100,000. The bond must come from a surety authorized to do business in Texas. Cities, school districts and other Texas entities set bid security through their own rules and bid documents. ### How large a bid guarantee does a federal construction solicitation require? FAR 28.101-2 sets the bid guarantee at no less than 20 percent of the bid price and no more than $3 million, and it is required whenever the contract calls for a performance bond or performance and payment bonds. The guarantee must be furnished in the proper form by bid opening. A missing or defective guarantee generally requires rejection of a sealed bid unless a listed waiver applies. ### Does the surety that writes our bid bond have to write the final bonds? Not automatically. A bid bond obligates the bidder to deliver final bonds, not the surety to issue them. Sureties usually underwrite as if they will, and some agencies require a consent of surety letter. Those letters typically carry conditions such as no material change in the bidder's finances or backlog before award, so read them. ## Official Sources 1. [A.R.S. §34-201 (Arizona bid security, surety qualification and statutory bid bond form)](https://www.azleg.gov/ars/34/00201.htm), Arizona State Legislature. Ten percent bid security, Arizona certificate-of-authority surety and no individual sureties, and the bond condition measuring loss as the price difference up to the bond penalty. Verified 2026-10-24. 2. [Cal. Public Contract Code §20170-§20172 (city bidder's security forms, 10 percent minimum and forfeiture)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PCC§ionNum=20172), California Legislative Information. Cash, cashier's or certified check or admitted-surety bidder's bond; security of at least 10 percent of the bid; forfeiture of the security when the successful bidder fails to execute the contract. Verified 2026-10-24. 3. [Cal. Public Contract Code §20129 (county bidder's security and faithful performance bond)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PCC§ionNum=20129), California Legislative Information. Forms of county bidder's security and return of unsuccessful bidders' security within 60 days of award. Verified 2026-10-24. 4. [Cal. Public Contract Code §5100-§5110 (relief of bidders)](https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=PCC&division=2.&title=&part=1.&chapter=5.&article=), California Legislative Information. No relief without agency consent, 90-day suit deadline, five-working-day notice and clerical-mistake elements, bar on rebidding and award to the second or third bidder. Verified 2026-10-24. 5. [Cal. Code of Civil Procedure §995.311 (public works bonds executed by an admitted surety insurer)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CCP§ionNum=995.311), California Legislative Information. Public works bonds must be executed by an admitted surety insurer, and the approving agency must verify admitted status. Verified 2026-10-24. 6. [Tex. Local Gov. Code §262.032 (county bid bond and performance bond)](https://statutes.capitol.texas.gov/Docs/LG/htm/LG.262.htm), Texas Legislature. County bid specifications may require a 5 percent bid bond on public works or contracts over $100,000, from a surety authorized in Texas. Verified 2026-10-24. 7. [FAR Subpart 28.1 (bid guarantees: when required, amount and noncompliance)](https://www.acquisition.gov/far/subpart-28.1), Acquisition.gov (General Services Administration). Bid guarantee required with performance bonds, 20 percent of bid capped at $3 million, rejection for noncompliance and the listed waiver situations. Verified 2026-10-24. 8. [FAR 52.228-1 (Bid Guarantee clause)](https://www.acquisition.gov/far/52.228-1), Acquisition.gov (General Services Administration). Ten days after receipt of forms to execute documents and bonds, default termination and liability for excess acquisition cost offset by the guarantee. Verified 2026-10-24. ## Related Decisions - [payment bond claims and notice deadlines](https://mycontractorsinsurancequote.com/construction-surety-bonds/payment-bonds) - [maintenance and warranty bonds after acceptance](https://mycontractorsinsurancequote.com/construction-surety-bonds/maintenance-warranty-bonds) - [California public works bond requirements](https://mycontractorsinsurancequote.com/construction-surety-bonds/public-works-bond-requirements/california) - [Arizona public works bond requirements](https://mycontractorsinsurancequote.com/construction-surety-bonds/public-works-bond-requirements/arizona) - [Texas public works bond requirements](https://mycontractorsinsurancequote.com/construction-surety-bonds/public-works-bond-requirements/texas) --- Start a quote request: https://mycontractorsinsurancequote.com/get-a-quote · Call 844-978-7283 Contract and insurance reviews are a courtesy service that may be available at times, depending on our workload and on the size, timing and complexity of the project. A review is not guaranteed and is limited to insurance considerations. It is not legal advice and is not a substitute for advice from your own legal counsel, which you may need before signing a contract or obtaining coverage. Insurance and surety services are provided through Gleason Insurance Brokers, LLC. Site information is educational and does not constitute legal advice, a binder, an offer of coverage, a guarantee of eligibility or confirmation of policy terms. Insurance conditions are governed by actual issued policies; surety rights and obligations are governed by bond and indemnity documents.