A bid bond is simply a debt secured by a bidder for a construction job or bid based selection process to provide a guarantee to the project owner that the bidder will take the job if selected. This acts as an assurance that the bidder has the financial means to accept the job for the price quoted in the bid.
For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (due to maybe bankruptcy) the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.
How do bid bonds work
Bid bonds are placed to prevent contractors from submitting time wasting and nonserious bids. A bond issuing company performs a comprehensive credit and financial review before they agree to provide bonds for the company and during the bidding process, contractors estimate what they think the job will cost to complete, and submit the price to the owner in the form of a bid.
If your bid is inaccurate, a claim can be filled on your bond that you must pay, and you will likely lose the job.
How to avoid bid bond claims
It is very important to take a moment and emphasize the importance of avoiding bid bond claims, this is because bond claims can severely hurt your reputation and make it less likely that you can get bonded the next time you want to bid on a project.
The safest way to avoid claims is by not submitting false bids. But since mistakes in bid calculations do happen and sometimes they are not within your control, if you manage to prove this was the case, you can fend off a claim but its always good to make sure your bid is always correct.