Bid bonds protect the project owner financially if the bidder is awarded a contract:
- Doesn’t sign the contract.
- Doesn’t provide the required performance and payment bonds.
Bid bonds help project owners filter out unqualified bidders by ensuring that the bidding contractor is financially stable and has the resources and experience to complete the project. Bid bonds also guarantee that, if the bidding contractor does not honor the terms of the bid, the project owner will be compensated. For instance, if the contractor tries to change the terms of the contract after it is signed — raising prices, using inferior materials or drastically extending the timeline, as examples — and the contract is broken, the bond helps compensate the project owner for cost differences between the bid they initially accepted and the next lowest bidder who they will likely switch to for the project.
These bonds also help prevent contractors from submitting impractical, unrealistic or inappropriately low bids just to obtain the contract.