Bid Bond

Bid Bond Information

A bid bond is a type of contract bond. It serves as a security, and a prequalification measure for a contractor’s bid during a bidding process. Should the contractor be awarded the bid, the bond is there to guarantee that the contract will be executed at the bid price and under the conditions set forth in the bid. If the contract is not executed according to the bid, a claim against the bond can be made. A bond further guarantees that if the contractor decides to withdraw from the bid after the bid has opened, a claim can be filed against the bond. There are some exceptions to this rule, but only if the contractor can prove that a mistake was made in their bid. A claim can also be filed against a bond if the contractor who has won the bid does not enter into an agreement or does not obtain the necessary performance bond and/or payment bond. In this sense, bid bonds work like all other surety bonds as agreements made between three parties. The obligee is the party requesting the bond (the project owner or the state), the principal is the party obtaining the bond (the contractor participating in the bid) and the surety bond company is the party issuing the bond, which is also responsible for its financial backing. Most construction project bids require contractors or subcontractors to obtain a bond. Often, bids that are not backed by a bond are not accepted at all.

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Three party agreement

Surety Bond Definition: The definition of a surety bond is as follows: A surety bond is a binding agreement between three parties. This agreement sets forth a financial guarantee by one party ( “surety” ) to another party ( “obligee” ) that a third party ( “principal” ) will fulfill required obligations to the obligee, and that state, federal, and local laws and applicable regulations will be adhered to. Let’s examine each of the three parties.

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