Bid Bond

Reviewed by Bhavana | Updated on Feb 01, 2023



A project owner receives a bid bond from a contractor as a part of the supply bidding process. A bid bond provides a guarantee that a winning bidder will take up the contract as per the terms at which they bid. A bid bond ensures compensation to the bond owner if the bidder fails to begin a project. Bid bonds are often used in construction jobs or other projects that follow a similar bid-based selection process.

The main function of the bid bond is to provide guarantee to the project owner that a bidder will complete the task at hand if selected. The concept of a bid bond assures the owner that the bidder has the necessary finances to accept the work for the price quoted in the bid.

Understanding Bid Bond

A bid bond is a kind of a construction bond that safeguards a developer or an owner in a construction bidding process. A bid bond provides a guarantee to a project owner that a bidder will complete the allocated work if chosen. In the absence of bid bonds, project owners will not be able to provide a guarantee that a bidder they chose for a project would be able to finish the job correctly.

Key highlights:

  1. A bid bond can be made by a third-party guarantor in the form a written guarantee after which it can be submitted to a project owner or a client.
  2. The bid bond guarantees that a contractor has sufficient funds required to execute the project.
  3. A contractor will submit a bid bond as a cash deposit for a tendered bid.
  4. A performance bond will replace a bid bond when a bid is acknowledged and a contractor proceeds to execute the project.

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