Bid bonds are required of contractors engaging in the competitive bid process for awards of public projects. When a contractor submits its sealed bid, a bid security is often required. Typical bid security is 5% – 10%, although most Federal Contracts may require 20%.
The bid bond makes the following guarantees:
- That the bidder, if awarded the bid, will sign the contract for the price indicated in the bid.
- That the successful bidder will provide the requisite performance and payment bonds as required by the contract.
If for any reason the lowest bidder does not or cannot enter into a contract for the bid price, the project owner/governmental entity is forced to award the contract to the next lowest bidder. The extra cost incurred by going to the next lowest bidder is the responsibility of the original low bidder. The owner is entitled to making a claim on the bid bond; it ensures the owner will not suffer additional costs due to irresponsible bidding.