AEC definitions
A bid bond is the bidder's security for the bid itself. The surety promises that if the bidder is awarded the job, the bidder will sign the contract and deliver the performance and payment bonds. If the bidder refuses, the owner can recover against the bid bond, up to its amount, typically the difference between that bid and the next one the owner accepts.
Definition
Public invitations for bid usually require bid security of a stated percent of the bid, as a bond or sometimes a cashier's check. The bid bond is not the performance bond. It expires when the contract is signed and the final bonds are delivered, or when the bid period ends without award. A bidder who discovers a mistake may have a narrow right to withdraw under the instructions and the law. A bidder who simply shops a better job after being low will face the bond. The penal sum is often a percentage, not the full contract price.
In depth
The owner awards to the bonded bidder. The bidder fails to execute the agreement or to provide required bonds within the time allowed. The owner then looks to the next responsive bid or rebids. The bond covers the loss the form defines, commonly the price difference, capped at the penal sum.
An owner who changes the deal at award may find the bidder was not obligated to sign the altered contract. The award has to match the bid.
Instructions sometimes allow withdrawal of a bid with a genuine clerical mistake, proven promptly. They do not allow withdrawal because material prices moved or a subcontractor backed out, unless the instructions say so.
The surety will investigate before paying. Notice should include the bid, the award, and the refusal.
A bond from an unacceptable surety, or in the wrong amount, can make the bid nonresponsive. That is decided at opening, not after you need the bond.
A cashier's check is an alternative only if the invitation allows it. It ties up cash. A bond uses the surety's backing.
Bids stay open for the days the invitation states. The bond should cover that period. An award after the bids have expired may not be enforceable against the bidder or the surety.
Extending the acceptance period should be a written consent, not an assumption.
Once the contract and the performance and payment bonds are in place, the bid bond's job is done.
Do not confuse a bid-bond claim with a default during construction. Those are the final bonds.
Examples
A low bidder refuses to sign. The owner awards the next bidder, higher by less than the bid bond's penal sum. The surety pays the difference.
A bid arrives with a bond from a surety the invitation did not authorize. The bid is nonresponsive.
The contractor signs and delivers final bonds. The bid bond is released. Later default is a performance-bond matter.
FAQ
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