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The Federal Government requires that bid bonds in the amount of 20% of the bid are submitted with all construction bids over $50,000.  The bid bond guarantees that if the contractor (Principal) is the low bidder, then he/she will enter into the contract and provide a performance bond in the full contract amount and a payment bond for 50% of the contract amount. This allows the Federal Government to weed out those contractor who will not be able to obtain the performance and payment bonds.