Bid bond

A bid bond is a written statement which guarantees the obligee that the principal will offer his bid, as awarded in the contract. This written statement ensures that the contractor has been entered in the contract. This obligation gives the financial guarantee of the bidder who has signed the contract, if he is successful in his bid. This bid bond is otherwise called as performance bond. When the bidder has been successful in his bid then bonding company will enter into contract like performance bond, supply bond, payment bond. This bond is required when the contractor accept the lowest bid of the project. If the supplier refuses to finish the project, this bid bond assures the developer to pay the variation between the lowest bid and the next lowest bid. It encourages the contractor to accept the bid seriously and make the obligation to be successful. Both the principal and the surety are sued in the court of law, for their failure of contract. To the obligee, they have to pay the additional expenses incurred by the contract for breaking of contract. The amount of penalty will be ten to twenty percent of the transaction.