Definition of Bid bond:
The function of the bid bond is to provide a guarantee to the project owner that the bidder will complete the work if selected. The existence of a bid bond gives the owner assurance that the bidder has the financial means to accept the job for the price quoted in the bid.
A written guaranty from a third party guarantor (usually a bank or an insurance company) submitted to a principal (client or customer) by a contractor (bidder) with a bid.
A bid bond ensures that on acceptance of a bid by the customer the contractor will proceed with the contract and will replace the bid bond with a performance bond. Otherwise, the guarantor will pay the customer the difference between the contractors bid and the next highest bidder. This difference is called liquidated damages, which cannot exceed the amount of the bid bond. Unlike a fidelity bond, a bid bond is not an insurance policy, and (if cashed by the principal) the payment amount is recovered by the guarantor from the contractor. Also called bid guaranty or bid surety.
A bid bond guarantees compensation to the bond owner if the bidder fails to begin a project. Bid bonds are often used for construction jobs or other projects with similar bid-based selection processes.
How to use Bid bond in a sentence?
- The bid bond provided some assurance that the deal would eventually go through as planned on by the new management team.
- You should always make sure that there is a strong legal contract like a bid bond signed when you are doing business.
- Our first decision in making cuts for contractors for our remodel was whether or not the contractor offered us a bid bond with their estimate.
Meaning of Bid bond & Bid bond Definition