Bid bond versus Performance Bond: How to protect your company

Construction Bonding

Contractors and clients are both eager and ready to get started on their next project, but the trust between them can be strained from past business deals or unprofessional work. Bid and Performance bonds can provide relief and confidence before, during, and after construction projects. If you are new to the industry or looking for clarification on these types of bonds and why they are used, look no further. 

The differences: 

Bid Bonds

A bid bond guarantees the contractor that they will complete the project, even before a bid is accepted. This allows the client to be confident a contractor can afford, begin, and complete the project being offered at the price they bid. Bid bonds are typically run through a third-party guarantor, which can run financial and background checks on contractors and reassure clients.

Performance Bonds

Performance bonds, or contract bonds, are written after the contractor is awarded a project and guarantees either side that if a failure to meet the contract's obligations exists, the other is protected. An insurance company or bank typically provides these. The Miller Act requires performance bonds for any contract over $100,000 +.

How do they protect your company?

If you are in the construction industry, these bonds are essential for covering all sides of a business agreement and make your company more attractive to clients. Showing that your company is the first to bring up bonds and fairness doctrines establishes trust and confidence that a job will be done well and as efficiently as possible, increasing the likelihood of securing a bid.

In your company toolbox, having safeties for successful projects and happy workers, including bonds, provides security for your companies stakeholders, clients, and employees. Just as extreme weather and arduous clients are unwelcome and costly, so is not having protections in place.

Miller Act Miracle

Passed in 1935, the Miller Act was not signed into law to provide another headache for participating in the construction industry; it was enacted to widen a previous government law, the Heard Act of 1894. The Act was too narrow and allowed loopholes and procedural limitations, causing problems for contractors and clients alike, with protection against government bids unclear. The Miller Act ensures all are protected and paid in faulted contracts. The 'little guys' are covered, and states have created the 'Little Miller Acts" for smaller projects to guarantee the same safeties as more extensive projects.


Next time you have a project and wonder how you are protected, take a look at bonds and their safeties. 

March 22nd, 2021 | , , , ,