BID BONDS

What is a Bid Bond?

A Bid Bond guarantees the owner that the principal will honor its bid and will sign all contract documents
if awarded the contract. Additionally, if performance & payment bonds are required by the obligee, it
promises that the surety will write these bonds. The owner is the obligee and may sue the principal and
the surety to enforce the bond.

If the principal refuses to honor its bid, the principal and surety are liable on the bond for any additional
costs the owner incurs in reletting the contract. This usually is the difference in dollar amount between
the low bid and the second low bid or it can be a full forfeiture, depending on how the bid bond and/or
bid specs are drafted. The penal sum of a bid bond often is five to twenty percent of the bid amount.