Nobody hiring a contractor to do work wants to consider the possibility that the work won’t be completed as contracted, or that the contractor won’t live up to their obligations.

When you hire a contractor for work, you want the job done. Often, as a means of assurance from the contractor, they’ll include a bid or performance bond as part of their contract.

Understanding a bid bond vs. a performance bond is essential because it helps you know what is insured through it.

If you’re unsure what each guarantees, read on to learn more.

What Are Bid Bonds?

When a contractor writes a bid, a smart form of insurance is to include a bid bond. The bid bond tells the person or business receiving the bid that the contractor will accept the job if awarded to them.

This ensures that when a bid gets awarded to a contractor, they don’t back out. It also prevents a contractor from overbidding just to get some work.

In a bid bond, three parties are involved: the obligee, the surety, and the principal. The obligee is the party getting the bid, the principal is the contractor offering the assurance, and the surety is the insurer.

What Are Performance Bonds?

Performance bonds or business bonds often follow once a bid is accepted. Typically, as part of the bid bond, the contractor must also guarantee that they will include a performance bond as part of their contract.

The performance bond guarantees that the contractor will fulfill the contracted work outlined in the specified timeframe. This helps to protect against loss if the contractor defaults and doesn’t complete the work.

Bid Bond Vs. Performance Bond

When considering bond options, you need to know when to use a bid bond vs. a performance bond and how they’ll benefit all the parties involved. Let’s take a look at the pros and cons.

Pros of Using a Bond

The benefits of securing either a bid bond or a performance bond will tell others that you’re serious about doing the work as bid and contracted.

When you include a bid bond, you tell the customer you’re ready to do the work. If you include in your bid bond that you’ll also secure a performance bond, they can be assured the job will get done as contracted.

Cons to Using a Bond

The only con to using a bond as part of your bid is if you default. When a surety works with a contractor to provide a bond, they expect you to fulfill your obligation.

If the contractors don’t, they will pay to cover the default, but you will still have to cover the cost of the surety. So, contractors need to understand how bonds work.

Know Which Types of Bonds Work Best

Comparing a bid bond vs. a performance bond is important because it helps you know what each type of bond secures if you’re hiring a contractor. As a contractor, you want to include the right kind of bond with your bid or contract to show you can do the job right.

If you’re a contractor who needs bond insurance, we can help. Let’s talk about your project and how bond insurance can help you get more work in the future.

Learn more about Tom Needham Insurance Agency at