Bid Bonds

How much does an auto dealer bond cost?

The cost of a auto dealer bond mainly depends on two factors:

Bond Limit: Every state has a specified bond amount that they require auto dealers to be bonded for. In other words, this determines the size of bond that auto dealers have to purchase. For example, given that Texas has a bond limit of $50,000 for motor vehicle bond, the amount you pay (aka bond premium) is a percentage typically between 0.5%-5% of the bond limit. Thus, a Texas dealer bond would start from $250, and could go up to $2,500 for those with poor credit.

Credit Score: this is crucial for premium amount as well as whether a potential dealer can even obtain a motor vehicle bond in the first place. Credit score reflects whether the applicant can behave in a way that is less likely to result in a claim being filed and whether the applicant can repay any potential claim.

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Overview

A Bid Bond is a type of construction surety bond required during the bidding process on public and some private projects. It guarantees that if a contractor is awarded the job, they will enter into the contract at the bid price and provide the required performance and payment bonds. Without a bid bond, a contractor’s bid is considered non-compliant. The bond protects the project owner from the risk of lowball bids and non-performance.

Purpose of Bid Bonds

Project Owner Protection: Ensures owners aren’t left scrambling if a winning bidder backs out or refuses to sign.
Legal/Contractual Requirement: Commonly required on public projects and increasingly used on private jobs. No bid bond often means no valid bid.
Credibility: Shows the contractor is financially vetted and backed by a surety, signaling reliability.
Accountability: Creates financial consequences for contractors who abandon their bid or fail to provide follow-up bonds.

Cost of Bid Bonds

Unlike other surety bonds, bid bonds typically cost very little—or nothing at all.

Premium Range: Often issued for free as part of a contractor’s bonding relationship. In some cases, fees may apply for frequent or very large bonds.
Surety Relationship: Issued through the contractor’s bonding line, which also covers performance and payment bonds.
Underlying Factor: Surety companies underwrite the contractor’s capacity to complete the project before issuing a bid bond.

Key Considerations

Bond Amount: Usually 5–20% of the bid price, depending on project requirements.
Requirement: Needed for most public works projects; increasingly standard for private owners too.
Claims: If the contractor refuses the job, the surety may cover the cost difference between the low bid and the next qualified bid, up to the bond limit.
Next Step: If awarded the project, the contractor must provide performance and payment bonds to proceed.