What Is a Performance Bond? Bid and Performance Bonds for County, School, and Transit Ride Contracts

What a performance bond is

A bond has three parties. You are the principal, the buyer is the obligee, and a surety company signs alongside you. Under the federal acquisition rules, a bond assures the buyer that the principal’s obligations will be met, and if they are not, it assures payment, to the extent the bond states, of the buyer’s loss (FAR 28.001). Public ride contracts use two kinds:

• Bid bond, or bid guarantee. It goes in with your bid or proposal. It promises you will not withdraw your offer during the acceptance period and will sign the contract and furnish the required bonds if you win. Some buyers call it a proposal bond.
• Performance bond. The winner delivers it before service starts. It promises you will carry out the contract on its terms.

A payment bond, the third common contract bond, promises that your suppliers and subcontractors get paid. Federal grant rules set one as a minimum on large construction contracts. Two other bonds share the name but do a different job. A Medicaid surety bond backs your Medicaid enrollment, whatever trips you run: Florida’s Medicaid agency, for example, may require one before it signs your provider agreement or as a condition of staying in the program (s. 409.907). A fidelity bond covers dishonesty by your own staff: the Southern Mississippi aging agency’s fiscal year 2026 ride contract asks for one worth at least 25 percent of the contract, covering everyone who receives or pays out contract funds.

How it works on a ride contract

The Washington County Health Department, which runs Medicaid rides in Washington County, Maryland, asked for both bonds in its request for proposals issued April 13, 2026:

1. With the proposal. Each company submits a proposal bond for 5 percent of its total evaluated price, guaranteeing its prices for 180 days after proposals are due. On a hypothetical $2,000,000 total evaluated price, that is a $100,000 bond. Any company may ask for its bond back after the award.
2. After the award notice. Within five business days of the recommended award, the winner delivers a $1,000,000 performance bond, written by a surety authorized to do business in Maryland, on the RFP’s bond form.
3. Every year. The bond stays in force through the base year and any option years. If it renews yearly, the contractor must give the department the surety’s confirmation of renewal 30 days before it expires. Missing that is a default, unless a replacement bond arrives before the old one expires.
4. In the price. The bond’s cost is built into the prices you propose. It is never a separate line item.

After the first year, the contractor may ask to reduce the bond, and the department may raise it again later, up to the original amount.

Here is what the promise means when routes go uncovered. West Shore School District in Pennsylvania wants a performance bond each year for 75 percent of that year’s contract price on its 2025 to 2030 transportation contract. If the contractor stops covering routes, the district may hire another company without notice, bill the contractor the extra cost plus its own staff time, hold back later payments, and claim the bond from the surety.

Who asks for one

Federal grant rules set minimum bonds only for construction and facility improvement contracts above the simplified acquisition threshold: a 5 percent bid guarantee and 100 percent performance and payment bonds (2 CFR 200.326). A bond on a ride contract is the buyer’s own choice. FTA’s third party contracting circular, 4220.1G, applicable since February 18, 2025, leaves transit agencies to set bonding by the risks of each purchase. These are the terms in four places:

Buyer	Bid guarantee	Performance bond
Washington County Health Department, Maryland (April 2026)	5% of the total evaluated price	$1,000,000, kept through the option years
West Shore School District, Pennsylvania (2025)	None named	75% of each year’s price, delivered yearly
New Jersey school districts (N.J.A.C. 6A:27)	When asked, at least 5% of the bid, up to $50,000	Required, at least one year of the contract
Federal agencies, including VA (FAR)	Only when a performance bond is required	Generally not required on service contracts

Some buyers score a bond rather than require it. Collier County, Florida, lists a performance bond among the factors it weighs when it picks its paratransit operators, in its 2026 service plan (Collier County). New Jersey’s full school bidding process is in New Jersey school transportation contracts.

How a small NEMT company gets one

1. Read the bond terms before you decide to bid. Note the amount, the form, how long it lasts, and what the buyer accepts instead. The bid or no-bid checklist has a row for each.
2. Call a surety agent early. SBA lists agencies that write SBA-guaranteed bonds, by state. The surety looks at your credit, capacity, and character, so be ready to show your finances and the work you already run.
3. Ask about SBA’s guarantee if a surety turns you down. As of October 2026, SBA guarantees bid, performance, and payment bonds for small businesses on contracts up to $9 million, or $14 million on a federal contract when the contracting officer certifies the guarantee is needed. In its prior approval program, SBA covers 90 percent of the surety’s loss on contracts of $100,000 or less, or for businesses owned by socially and economically disadvantaged people, HUBZone businesses, and businesses owned by veterans or service-disabled veterans. It covers up to 80 percent on other contracts (13 CFR 115.31).
4. Price the fee in. On a guaranteed performance bond, you pay SBA 0.6 percent of the contract price as of October 2026, on top of the surety’s premium. On a hypothetical $300,000 contract, the SBA fee is $1,800. SBA charges nothing for a bid bond guarantee, and the bid bond guarantee runs 120 days unless the surety extends it.
5. Check your state’s own help. Since July 1, 2026, Maryland’s Small Business Development Financing Authority can write bid, performance, and payment bonds of up to $5,000,000 each, or guarantee a private surety against up to 90 percent of its loss, capped at $3,000,000, for small businesses that cannot get bonded on reasonable terms (Economic Development Article 5-552 and 5-553). Washington County’s 2026 RFP still prints the old $750,000 limit.
6. For a federal bond, check the surety. A corporate surety on a federal contract must appear on Treasury’s Circular 570 list of approved sureties (FAR 28.202). The Bureau of the Fiscal Service updated the list on August 1, 2026.

Keep a copy of every bond and its power of attorney with your certificates of insurance. West Shore wants the surety’s attorney-in-fact to attach a current, certified power of attorney to the bond.