Bid bond

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A bid bond is a guarantee used during a bidding process. The contractor (the principal) gives it to the project owner or general contractor (the obligee) to promise that if their bid is chosen, they will sign the contract and provide the required performance and payment bonds. If the winning bidder refuses to enter into the contract or to provide the needed bonds, the bid bond can be forfeited. The forfeiture is usually a percentage of the bid, typically not more than the difference between the top bid and the next lowest bid; some bonds require forfeiture of the full bond amount regardless of the bid gap. The bond helps the owner prequalify bidders and ensures the winner will enter into the contract for the bid amount. It is generally cheaper than other guarantees and does not tie up cash or credit lines during bidding.

In the United Kingdom, bid bonds are common across industries such as construction, supply, and services. They are used to secure obligations like HMRC bonds for taxes and duties on goods subject to excise, helping ensure compliance. On US public projects, bid bonds are typically 5% or 10%, though private contracts may use different amounts.