Do I need a bond to bid on government contracts?
Bid bonds, performance bonds, and payment bonds are required on most federal construction contracts over $150,000 and on many state and local construction projects. Service contracts typically do not require bonds. Each solicitation states the bonding requirements.
Bonding is most common on construction contracts, where it protects the government from contractor default. Three bond types exist:
A bid bond guarantees that if you win the contract, you will sign the contract and provide the performance and payment bonds. Bid bonds are typically required on federal construction over $150,000 and on most state and local construction projects.
A performance bond guarantees that you will complete the work to specification. Performance bonds are typically 50-100% of the contract value and are required on federal construction contracts over $150,000.
A payment bond guarantees that you will pay your subcontractors and suppliers. Payment bonds are required on federal construction contracts over $35,000 (the Miller Act threshold) and on most state and local construction projects.
For service contracts, bonding requirements are less common but exist for high-value or high-risk services. Some agencies require bid bonds on services contracts; performance and payment bonds on services are unusual.
Bonds are purchased from licensed surety companies, often through a surety agent or broker. Surety companies evaluate your financial strength and past performance before issuing bonds — for small contractors, the SBA Surety Bond Guarantee Program can backstop bonds up to $9 million.
If you cannot obtain a bond, you cannot complete the contract — so make sure you have a relationship with a surety BEFORE bidding on bonded work.