A bid bond is surety bond that guarantees the obligee that the principal will be able to honer their bid. Some times obligee’s will not accept cash for the bid only a bid bond.
If the contractor has the lowest bid they will be awarded the contract. Once this occurs the bid bond will turn into the final bond. They surety will still need to see the top three bidders before the payment and performance bond will be issued. If there is to much of a bid spread the surety will not issue the contract bond. If the bid is closed the surety will require a letter from the obligee stating that. Bid bonds help weed out contractors that can not support the project financial.
How bid bonds help contractors
Bid bonds help contractors free up working capital because if they did not have a bid bond the contractor would have to furnish cash in lieu of the bid bond.
Tags: bid bond, contract bond, performance and payment bond, surety
