Bid Bond:

A bid bond is a type of surety bond used to ensure that a principal bidding on a contracted project or job will enter into the contract with the obligee if awarded. The bond also indicates that the principal will be able to obtain a performance bond if that principal is awarded the job.

A bid bond is underwritten to the contract amount being bid on. Part of a principal's ability to enter into a contract with the obligee is the principal's ability to post the performance bond for the contract. If the principal is not able to qualify for the performance bond, therefore unable to enter into the contract with the obligee, a claim could be made on the bid bond. For this reason, a surety will base the approval for a bid bond on the principal's ability to qualify for the contract performance bond.

(see also: Bid Bonds)