Bid Bond (Bid Bond)
A surety bond submitted with a bid that guarantees the bidder will sign the contract and provide performance/payment bonds if awarded.
Definition
A bid bond is a guarantee from a surety company that if you win the contract, you will (1) sign the contract within the time specified and (2) provide the required performance and payment bonds. If you back out after winning, the surety pays the agency the difference between your bid and the next-lowest bid (up to the bid bond amount, typically 5-20% of bid value).
When it applies
Required on most federal construction contracts over $150,000 and on most state and local construction projects. Less common on service contracts. Bid bonds are obtained from licensed surety companies; the SBA Surety Bond Guarantee Program can backstop bonds for small businesses up to $9M.