Bid Bonds, Explained: What They Cost and How to Get Bonded
A bond is a surety's promise to finish what you started: bid bonds prove you mean your price, performance bonds protect the buyer if you cannot deliver, and payment bonds protect your subcontractors. Expect combined premiums around 2.5–3 per cent of contract value on small contracts, sliding under 1 per cent on large ones; industry-typical figures, set on your financials.
Bonding is the part of public construction and service bidding that surprises first-timers, so take it in order: what each instrument is, what it costs, how the surety decides, and how you get a line. None of the figures in the cost table below come from the Institute corpus — surety premiums are private contracts, not published data. They are industry-typical ranges as published by Canadian surety brokers, and should be read as planning figures, not quotes.
Three instruments, three promises. A bid bond (or a consent of surety letter) accompanies your tender and says: if we win, we will sign, and the surety stands behind the performance bond that follows. Walk away after winning and the buyer claims against it. A performance bond replaces that promise once the contract is signed: if you default, the surety finishes the work or pays the buyer's costs, up to the bond amount. A labour and material payment bond protects the people below you — subcontractors and suppliers get paid even if you do not. Public buyers commonly require the full set on construction and some service contracts; goods tenders usually require none.
| Instrument | Typical amount | Typical premium (industry-typical) |
|---|---|---|
| Bid bond / consent of surety | 10% of tender price (5–20% range appears in tender documents) | Usually no separate premium once you hold an approved bonding line; otherwise a small flat fee |
| Performance bond, contract under $500K | 50% of contract value is common | ≈ 2.5–3% of contract value |
| Performance bond, $500K–$1M | 50% of contract value | ≈ 1.5–2.5% of contract value |
| Performance bond, $1M–$5M | 50% of contract value | ≈ 1–1.5% of contract value |
| Performance bond, over $5M | 50% of contract value | ≈ 0.5–1% of contract value |
| Labour & material payment bond | 50% of contract value, commonly required alongside | Usually priced into the combined rate or a small add-on |
How sureties price risk. A surety is not selling insurance; it is underwriting your ability to complete a specific contract with your own money, and it prices three things. First, your financials: audited statements, working capital, and debt structure tell it whether you can carry the contract's cash-flow worst case. Second, your track record: comparable projects completed, claims history, and how your firm behaves when a job goes wrong. Third, capacity: work already on hand, including every bonded contract you have signed but not finished. New firms start with small lines precisely because capacity, not willingness, is the binding constraint.
How to get bonded, step by step. Find a surety broker — not a general insurance broker — because bonding lines live with specialists who know which surety fits your profile. Assemble the package: two to three years of financial statements (reviewed or audited), a CV of completed work, an organizational chart, and a realistic projection of the contracts you will pursue. Start small: ask for a line that covers $250K–$500K contracts (an industry-typical starting range), take one, perform, and request increases with each clean completion. Keep the line current even when quiet — a lapse resets the relationship clock. When a tender demands bid security and you hold no line, call the broker the day the notice appears; consent letters can sometimes be arranged quickly, but "sometimes" is doing a lot of work in that sentence.
What this means for pricing. Build the premium into every bid's price section: on a $400K contract, a 2.5–3 per cent combined premium (industry-typical) is $10,000–$12,000 that the low bidder who forgot bonding has just donated to the second-lowest. See How to Bid on Government Contracts for where bond costs sit in a compliant price build-up.
Common questions
Are bid bonds always 10 per cent of the price?
The tender document sets the required amount, and 10 per cent is the common setting, with 5–20 per cent appearing occasionally. Read the security section of each tender; assume nothing.
Can I bid on bonded work without a bonding line?
Sometimes — alternatives like certified cheques or securities deposits exist, and tender documents say which are acceptable. For any serious construction program, though, the line is the asset; get one before you need it.
What weakens a bonding application fastest?
Late or internal-only financial statements, work-on-hand already at capacity, and any undisclosed claim or dispute. Sureties price surprises more harshly than modest financials.