Bid Bond vs. Performance Bond: What Changes When You Win in Texas

A bid bond protects the owner before award: it guarantees that if you win, you will sign the contract and post the final bonds. A performance bond protects the owner after award: it guarantees the job gets finished, for the full contract amount. The bid bond is a small number for a short window. The performance bond is the whole contract for the life of the job, and it usually comes paired with a payment bond.

This guide is for Texas contractors bidding public work: school districts, cities, counties, TxDOT, and state agencies. Three terms come up throughout. The principal is you, the contractor. The obligee is the owner who requires the bond. The surety is the insurance company that guarantees your promise.

What is the difference between a bid bond and a performance bond?

They guarantee different promises at different moments.

A bid bond guarantees your bid. It says that if the owner accepts it, you will sign the contract at the price you bid and deliver the required performance and payment bonds on time. If you refuse, the owner claims against the bid bond.

A performance bond guarantees the work. It says you will complete the project according to the plans, specifications, and contract documents. If you default, the surety steps in to finance completion, bring in another contractor, or pay the owner up to the bond amount.

The award is the hinge between them.

Bid, performance, and payment bonds side by side

	Bid bond	Performance bond	Payment bond
Protects	The owner, if the winning bidder won’t sign	The owner, if the job isn’t finished	Subcontractors, suppliers, and laborers
Amount	Set by the owner’s bid documents (often a percentage of the bid)	100% of the contract on Texas public work	100% of the contract on Texas public work
Due	With your bid	After award, before work begins	With the performance bond
Ends	When you sign and deliver the final bonds, or the bid is rejected	At completion and final acceptance	Through the job and the Chapter 2253 claim periods
Cost to you	No separate premium, or a small flat fee	Premium based on credit, capacity, and contract size	Usually priced together with the performance bond
If you walk away	Owner keeps the bid security or claims its extra cost, up to the bond amount	Surety completes or pays, up to the full contract amount	Surety pays valid claims from unpaid subs and suppliers

The Texas performance and payment bond rules come from Government Code §2253.021. Our performance bond page breaks down the thresholds by owner type.

How much is each bond?

The bid bond amount is owner-specific

No single Texas rule sets the bid bond percentage for every owner. A few examples:

• Counties. Bid specifications may require a bid bond of 5% of the total contract price on public works or contracts over $100,000 (Local Government Code §262.032(a)).
• School districts and cities. The bid packet sets the amount and the forms accepted.
• TxDOT. The amount is printed on the proposal form, and electronic bids must use an electronic bid bond. You enter the bond’s authorization code into TxDOT’s bidding system (2024 Standard Specifications, Item 2 §8.2).
• Federal work. A bid guarantee must be at least 20% of the bid price, capped at $3 million, and is generally required whenever a performance bond is required (FAR 28.101-1 and 28.101-2).

Always use the figure in your bid documents. Our bid bond page has the full owner-by-owner breakdown.

The performance bond is the whole contract

On Texas public work, a performance bond is required when the contract is in excess of $100,000, and it is “in the amount of the contract” (§2253.021(a)(1), (b)). On a $600,000 job, the bid bond might be $30,000 and the performance bond is $600,000. That is twenty times the exposure, which is why the surety does its homework before bid day, not after.

The bond tracks the contract. When a change order raises the contract price, the performance and payment bond amounts go up with it. Send every executed change order to your agent.

What does each one cost?

Bid bond: usually no separate premium, or a small flat fee. The surety earns its premium on the performance and payment bonds that follow a winning bid. We confirm your cost when you apply.

Performance and payment bonds: a premium figured on the contract amount, priced by your credit, your financial capacity, and the job. Our performance bond cost table shows the current rate tiers, so we won’t repeat them here.

One application covers all three bonds

Contractors are often surprised that a “free” bid bond comes with an application. The reason is simple: a bid bond is effectively the surety’s promise that it will write your performance and payment bonds if you win.

If a surety issued your bid bond and then refused the final bonds, you couldn’t sign the contract. The owner would claim the bid bond, and the surety would pay it and come to you for repayment. No surety wants that, so it underwrites the whole job up front.

That means you prequalify once:

• Jobs up to about $1 million. Our credit-based contract bond program underwrites single jobs on your credit and a short application, without audited financial statements.
• Larger jobs, or a growing backlog. Full underwriting: CPA-prepared financial statements, a work-in-progress schedule, your bank line, references, and a general indemnity agreement.

Once you’re approved, bid bonds come quickly: same-day for prequalified contractors. And when you win, the performance and payment bonds are already lined up. Our guides on how to get a bid bond in Texas and how to get your first performance bond walk through each file.

A bid-to-award timeline for a Texas school job

Hypothetical example. A specialty contractor bids a $600,000 interior renovation for a Texas independent school district. The bid packet asks for bid security of 5% of the greatest amount bid and gives the winner 10 days after award to sign and deliver bonds. Your packet’s numbers control; these are for illustration.

When	What happens	Bond in play
As soon as you decide to bid	You decide to bid and send us the bid packet and your application. We underwrite the job, including the final bonds.	None yet
A few days before bid	We issue the bid bond on the district’s form for 5% of $600,000: a $30,000 bond amount. No cash leaves your account.	Bid bond
Bid day	The bond goes in with your bid: by runner to a Harris County bid opening, or as an electronic file anywhere in Texas.	Bid bond
Bid opening to award	Bids are tabulated. Your bid bond stays in force while the district decides, for the period the bid documents set.	Bid bond
Notice of award (Day 0)	You’re the winner. Send us the award letter and the final contract amount right away.	Bid bond
Days 1–10	You sign the contract. We issue the performance bond and the payment bond, each for $600,000, on the district’s required forms.	Bid bond ends; P&P begin
Before work begins	Bonds must be delivered before you start (§2253.021(a)).	Performance and payment
Mid-job change order	The district adds $40,000 of scope. The bonds should now cover $640,000.	Performance and payment
Final acceptance	The work is accepted and the performance obligation ends. A warranty requirement, if any, may call for a separate maintenance bond.	Performance ends

On a TxDOT letting the clock is set by the specifications: the executed contract and the performance and payment bonds, each in the full contract amount, are due within 15 days after written notification of award (2024 Standard Specifications, Item 3 §4). On a county job, check the bid documents. Where a county requires its own performance bond on a contract over $50,000 that Chapter 2253 doesn’t already cover, it’s due within 30 days of signing and before work starts (LGC §262.032(b)).

What happens if you walk away?

The answer depends on which side of the award you’re on.

Before you sign (bid bond). You lose the bid security. TxDOT keeps the proposal guaranty “not as a penalty, but as liquidated damages,” and won’t consider you for the same work again unless the design changes substantially (Item 3 §5). Other owners award to the next bidder and claim the difference against your bid bond, up to its amount. In the school example, the most at stake is $30,000.

After you sign (performance bond). If you default on the job, the owner calls on the surety, which can finance your completion, hire a replacement contractor, or pay the owner, up to $600,000 in our example.

Either way, the surety recovers what it pays from you under the indemnity agreement you signed, and a claim makes future bonding harder.

Performance bond vs. payment bond: where the third bond fits

The performance bond protects the owner. The payment bond protects the people you hire: subcontractors, suppliers, and laborers who have a direct contract with you or your subs (§2253.021(c)). It exists because they can’t put a lien on public property.

On Texas public work, the payment bond kicks in at a lower contract value: in excess of $25,000, or $50,000 when the owner is a city (§2253.021(a)(2)). So a $60,000 school job needs a payment bond but no performance bond. Most jobs over $100,000 need both, written on one application. See our payment bond page for who can claim and when.

What to send us before you bid and after award

Before you bid

• The full invitation to bid or bid packet, including the owner’s bid bond form if it has one
• The owner’s exact legal name (the obligee)
• Your bid amount, including any add alternates (bid security is often figured on the greatest amount bid)
• The bid security required: percentage and accepted forms
• Bid opening date, time, and delivery method (paper, e-bid, or TxDOT electronic bid bond)
• The post-award deadline for the contract and bonds
• Contract time and any liquidated damages for late completion
• Your application, or for larger jobs, your current financial statement and work-in-progress schedule

After notice of award

• The notice of award or award letter
• The final contract amount, including accepted alternates
• The contract or agreement form you’ll sign
• The owner’s required performance and payment bond forms
• Any scope or price changes since bid day
• Expected start date and who receives the signed bonds

If you send the second list the day the award letter arrives, there’s time to spare even on a 10-day deadline.

Getting a quote

Send us the bid packet when you decide to bid, not after you win. With the solicitation, your bid amount, and a short application, we can quote the bid bond and the performance and payment bonds that follow it together. Bid bonds are same-day once you’re prequalified, with runner delivery to Harris County bid openings and electronic bid bonds for TxDOT lettings.

Call us at (281) 484-8320, or start from our Texas bid bond page. For the bonds after award, see Texas performance bonds, or browse all contractor bonds.