When pursuing government contracts—especially in construction—bonding requirements are often a make-or-break factor. They’re not just a box to check; they’re a safeguard for the government and a major hurdle for contractors who aren’t prepared.
In this article & video, we’ll break down the key types of bonds, when they’re required, how to obtain them, and strategies to increase your bonding capacity so you can compete for larger and more lucrative contracts.
Why Bonds Matter in Government Contracting
A bond is a financial guarantee that protects the government if a contractor fails to perform, defaults, or doesn’t pay subcontractors. In federal contracting, bonds are primarily risk management tools—ensuring taxpayers’ money is protected.
On most federal construction contracts over $150,000, the Federal Acquisition Regulation (FAR) requires contractors to provide certain bonds. Many state and local agencies follow similar rules.
The Three Main Types of Bonds
1. Bid Bond
A bid bond guarantees that your bid is legitimate. If you win a contract but refuse to sign or fail to secure the required performance bond, the government can claim against your bid bond to cover re-procurement costs.
Think of it as putting skin in the game- a signal to the contracting agency that you’re serious about the work.
Common uses:
- Federal and state construction contracts
- Certain high-value service contracts
2. Performance Bond
A performance bond guarantees that you will complete the work according to the contract’s terms and specifications. If you default, the surety company steps in—either paying the government or hiring another contractor to finish the job.
Key point: Many contracts require 100% performance bonds, meaning your bonding limit must match the full contract value. Being “almost bonded enough” still means automatic disqualification.
3. Payment Bond
A payment bond ensures that subcontractors, laborers, and suppliers are paid. It protects the government from liens or legal claims on public projects, where suing the government isn’t an option.
This bond is especially common in construction and other work involving multiple subcontractors or suppliers.
How to Get a Bond
Bonds are issued by surety companies, often divisions of large insurance firms. Approval is not automatic-sureties evaluate your:
- Financial statements and credit history
- Project history and performance record
- Industry experience
The larger the bond amount, the more scrutiny you’ll face. For small businesses, starting with smaller bonded projects can build trust with your surety and increase your bonding capacity over time.
Bonding Capacity: How Much is Enough?
A good rule of thumb is to maintain capacity for your average project size plus a 20–25% buffer. For example, if your typical project is $10M, aim for at least $12–12.5M in bonding capacity.
Because many contracts require 100% performance and payment bonds, your bonding limit must cover the full contract value—no exceptions.
What If You Can’t Meet the Bond Requirement?
If you can’t meet a bonding requirement, you generally cannot bid as the prime contractor. But that doesn’t mean you’re out of options. You can:
- Partner through a joint venture
- Enter a mentor-protégé agreement
- Work as a subcontractor to a bonded prime
These strategies not only allow participation in contracts but also help you build past performance, which is critical for increasing future bonding limits. Learn more about our Federal Teaming Support.
Strategies to Increase Bonding Capacity
- Deliver successfully – Complete projects on time and on budget.
- Maintain strong financial health – Keep clean, accurate books.
- Avoid overextending – Don’t take on projects beyond your operational or financial capacity.
- Build trust with your surety – Consistent performance leads to greater bonding lines over time.
Can You Use One Bond for Multiple Contracts?
No—each bond is project-specific. However, you can establish an aggregate bonding program that covers multiple contracts simultaneously, provided it meets the requirements of each RFP.
Always check the solicitation’s bonding clauses and, if unclear, ask the contracting officer during the Q&A period.
Avoid Last-Minute Bonding Surprises
Before you invest time and resources into pursuing an opportunity, verify bonding requirements early. Missing a bond requirement after winning an award is one of the fastest ways to lose a contract and damage your credibility.
SAS-GPS: Your Partner in Bonding Compliance
Bonding is only one part of the government contracting puzzle, but it’s a critical one. At SAS-GPS, we help you win.
If bonding is holding you back from bidding—or if you’re ready to pursue bigger opportunities—we will help you understand solicitation bonding requirements and guide you through the process. Let SAS-GPS remove the roadblocks so you can compete with confidence. Contact us today to get started.
