Bid bond vs performance bond: which is due when, and how to post them without tying up cash

The tender closes at 2pm on the 20th. It wants a bid bond with the submission. If you win, there’s a performance bond to come, and the packet says “before commencement.”

So what’s the difference? A bid bond is security that backs your tender: it shows you’ll sign if you win. A performance bond is security that backs the job: it covers the buyer if you don’t finish it. One is due on the tender close date. The other falls due after award, usually before you start work. That’s two dates, often a few weeks apart, and both can tie up cash or borrowing capacity.

This guide puts both on one timeline and shows what each one needs. If you’ve already won and the security is due, see the contract security situation page.

Bid bond vs performance bond: the quick comparison

	Bid bond (tender security)	Performance bond (performance security)
What it backs	Your promise to sign the contract if you win	Your promise to deliver the work
When it’s due	With the tender, by the close date and time	After award, normally before work starts or the first payment
Who can call on it	The buyer, if you win and refuse to sign or can’t provide the next security	The buyer, if you default on the contract
How long it lasts	Until the contract is signed or the tender validity period ends	Until practical completion, or a reduced amount until the defects period ends
Typical form	Bank guarantee, insurance bond, sometimes cash	Bank guarantee, insurance bond, or cash retention from progress payments
What it costs you	Fees, plus cash or borrowing capacity held back	Fees, plus a larger amount of cash or capacity held back for longer

The words get used loosely. “Tender security,” “bid security” and “bid bond” mean the same thing. So do “performance security” and “performance bond.” Your tender documents decide what’s actually required, in what form, and by when.

When is each one due? Put both on one calendar

Work from the close date, then forward from the award.

1. Before the tender closes. Ask your bank or insurer what they need to issue the bid bond. Do this before you start pricing, not the week of the close.
2. Close date. The bid bond goes in with the submission, or the buyer receives your bank’s or insurer’s confirmation, as the conditions say.
3. Evaluation period. The tender documents give a validity period. Your bid bond usually needs to stay valid for it, which can mean an expiry date that has to be long enough.
4. Award. If you win, the contract tells you the performance security deadline. It’s often a set number of business days after signing or before commencement.
5. Before the first payment. The performance bond usually has to be in place before the buyer releases anything. That means you’re funding wages and materials for the first fortnight or month while security is also tied up.

That last point catches people. The bond is one cost, and the job’s start-up costs are another. If you’re a head contractor or sub, see funding wages on a new contract.

What can a small business use as tender or performance security?

The tender says what’s acceptable. Commonly, it’s one of these:

• A bank guarantee. Usually backed by a term deposit for the same amount. One major bank says issue can take at least 1 to 3 business days for cash-secured guarantees up to $1.5m after you sign its agreement and your term deposit is ready (Westpac). Other security, like property, means a longer conversation.
• An insurance or surety bond. Issued by an insurer on the strength of your financials and track record, with less cash tied up. Some buyers restrict which issuers they accept, so check the list in the tender.
• Cash or retention. On many building contracts the buyer holds back part of each progress payment instead. It costs you no fee but it does cost you cash flow.

Some government buyers set their own rules about what they’ll accept. NSW Treasury’s security guidance for construction projects, for example, says security should be proportionate to the project’s financial and performance risks (TPG25-05). The Commonwealth’s tenders are advertised on AusTender, and the security terms for each approach sit in the tender documents themselves, not in a standard figure.

How much is a performance bond, and when does it reduce?

There’s no one number. For most contracts, the amount is whatever the contract says. The one hard rule I can point to is Queensland’s: under the QBCC Act, retention or security on a building contract is capped at 5% of the contract price before practical completion, and no more than 10% of any progress payment can be held as retention. After practical completion, the cap falls to 2.5% (QBCC). Other states have their own security of payment rules and standard contracts, so check the contract in front of you.

What matters for your cash:

• Ask when it reduces. Does half come back at practical completion? Do you have to wait out the defects liability period for the rest?
• Check the expiry. A guarantee with a fixed expiry date has to be extended or replaced if the job runs late.
• Know what holds it up. Releasing a bank guarantee usually means returning the original to the bank, and cash security can take time to be released. Westpac says it needs instructions at least 31 business days before maturity for cash security.

What to do this week if the tender needs a bid bond

Here’s a realistic plan if the close date is within two weeks. For more on the two-week window, see the two-week window page.

When	What to do
Today	Read the conditions of tender for the amount, form, validity period and accepted issuers. Ask the buyer if anything’s unclear.
This week	Ask your bank for the guarantee’s timeline and what it needs. Get the beneficiary’s exact legal name and address. If you don’t have the cash cover, work out where it comes from.
Before close	Sign the bank’s agreement, fund the term deposit, and get the bond or confirmation in the format the tender asks for.
If you win	Ask for the performance security requirement in writing. Start that process straight away.

Allow time for the paperwork. How long a bank guarantee takes is mostly about wording, signatures and cash cover, and the same applies here.

How to post both bonds without tying up cash

A worked example, with made-up numbers. Illustrative example only.

A civil contractor tenders for a $600k job. The tender asks for a bid bond of $30k, and the contract will want a performance bond of $30k within five business days of signing. The contractor has $40k in the bank, which is also the wages and materials buffer for the first month.

If they cash-secure both bonds from the same $40k, they can’t. The bid bond uses $30k now. When the tender is won, the performance bond needs another $30k, and the first fortnight of wages hasn’t been paid yet.

The realistic options are:

• Ask an insurer for the bond. That uses borrowing capacity instead of cash, though they’ll want financials.
• Fund the term deposit. Borrow the cash cover for the guarantee and keep working capital free.
• Negotiate the amount or form. Ask whether the buyer will accept a retention from progress payments instead, or a smaller bond that reduces at practical completion.

Which is best depends on cost, timing and what the buyer will accept. The point is to settle it before the tender closes, not after you’ve won. If the cash cover is the sticking point, you can check your options in about a minute.

Can the security date be extended?

Rarely, on the day. Some buyers will agree to a short extension on performance security if asked early and in writing. Few will do it for a bid bond, because it’s a condition of your tender being considered. Don’t assume. Ask the contact officer before the close.

If you need to show your lender or bank what’s due and when, put the tender clause and any correspondence together with your proof of the deadline.

Bond coming up? See what’s possible before the date

Tender security is one of those costs that sits between winning the work and being paid for it. If the cash cover for the bid bond or the performance bond is the gap, that’s the kind of date we work to.

Checking your options takes about 60 seconds, and enquiring doesn’t touch your credit file. We don’t send your details out to a pile of lenders, so your phone won’t light up all afternoon. A real person looks at your tender, the security amount and the dates, then calls you back. Same-day funding is possible for smaller unsecured amounts, $20k to $250k is possible the same day with property security, and up to $5m is possible within 24 to 48 hours.

Please fill the form in accurately: the bond amount, the tender close or contract start date, who the beneficiary is, and any property you could offer. That helps us match the right option the first time.

See if you qualify →

Prefer to talk it through first? Ring 1300 752 188.