What is a Bid Bond?

A bid bond is important to show proof of guarantee to the Employer that you can comply with the bid contract and also that you can accomplish the job as laid out in the contract. A bid bond is a guarantee that you provide to the Employer stating that you have the capability to take on and implement the project once you are selected during the bidding process. Normally, Employers do not know if a contractor is financially stable or has the necessary resources to take on a project. However, because of a bid bond, they will be more comfortable to award a project to a contractor knowing that if the project fails, they can collect compensation from the surety bond.

How do Bid Bonds Work?

Requesting a bid bond will keep contractors from submitting frivolous bids, because they would be obligated to perform the job, or at least pay the bond premiums. Bond-issuing companies perform comprehensive credit and financial reviews before agreeing to provide bonds for a company. During bidding, various contractors estimate what the job will cost to complete. They submit this price to the Employer in the form of a bid. This usually means that the bonding company will pay the Employer/Beneficiary the difference between the lowest and next lowest bid.