Bid bond
Open-knowledge reference entry
A bid bond is issued as part of a supply bidding process by the contractor to the project owner, to provide a guarantee that the winning bidder will undertake the contract under the terms on which they bid.
The bond penalty is subject to full or partial forfeiture if the winning contractor fails to either execute the contract or provide the required performance and/or payment bonds. The bid bond assures and guarantees that, should the bidder be successful, the bidder will execute the contract and provide the required surety bonds.
Details
A bid bond can be in any amount. The contractor or supplier providing the bid bond guarantee is referred to as "The Principal" on the bid bond. The bid bond prequalifies the principal and provides the necessary security to the owner (or general contractor), also known as the “obligee”. This helps prequalify contractors and protects the bid letting by guaranteeing that the principal will enter into the contract, for the amount of the bid, if it is awarded.
A bid bond guarantees that the “obligee” will be paid the difference between the principal's tender price and the next closest tender price. This action is only triggered should the principal be awarded the contract but fails to enter into the contract, as agreed, with the obligee. The bid bond penalty is a percentage of the total bid amount, not to exceed the spread between the first and second place bidders.
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This entry incorporates text from “Bid bond” on English Wikipedia. Contributors are listed in the page history. Text is available under the Creative Commons Attribution-ShareAlike 4.0 License. Selected authority identifiers and statements are retrieved from Wikidata under CC0; their references and qualifiers remain part of the verification path.