What is the difference between Bid Bonds and Performance and Payment Bonds?

When it's used: During the bidding phase of a project.
Purpose: To guarantee that the contractor (bidder) will enter into the contract and provide the required performance and payment bonds if they win the bid.
Protects: The project owner, ensuring that the contractor doesn’t back out or fail to provide bonding if awarded the job.
Typical scenario: You’re bidding on a public project, and the owner wants assurance that you're serious and financially capable.

When it's used: After the contract is awarded.
Purpose: To guarantee that the contractor will complete the project according to the contract terms and specs.
Protects: The project owner, in case the contractor fails to perform or defaults.
Typical scenario: If the contractor walks off the job or does substandard work, the bond helps cover costs to finish the project.

When it's used: Alongside the performance bond (usually required together).
Purpose: To ensure that the contractor pays all subcontractors, laborers, and suppliers.
Protects: Subcontractors and suppliers, ensuring they get paid even if the contractor doesn’t pay up.
Typical scenario: If the contractor runs out of money and doesn’t pay their subs, the bond steps in.

Recent Posts