OVERVIEW OF BID BONDS, By Jacob Dines of Surety1
Bid Bonds – Issued by surety on behalf of contractor, as principal, as security for a bid to provide goods or services to the obligee. A bid bond is a type of surety bond that guarantees that the principal will enter into the contract that is being bid.
BID BOND CLAIMS
A claim on a bid bond will arise under two circumstances:
An honest mistake is usually a valid reason for a bidder to withdraw the bid without penalty. It is common for the surety company to raise a defense on behalf of the principal to avoid paying the claim on a bond. The surety market’s rights and obligations are a derivate of its principal’s and therefore will often raise its own policy defenses that are not available to the principal. One notable policy defense is waiver because of a delay in presenting the claim thus resulting inan expiration in either the bond or the bid.
HOW A VALID BID BOND CLAIM IS PROCESSED
The amount paid by the surety is constituted by the difference between the principal’s bid and the next highest bidder. Here is a good example of such claim:
There are some exceptions to the above rule depending on the terms of the bond. The maximum liability will be the penal limit stated in the language on the bond.