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Definition

Bid or Tender Bond

A Bid or Tender Bond is a kind of construction bond which provides an assurance of the intention of the party submitting a tender (i.e. the authority) to sign a contract if his/her tender is accepted.

This type of bond is mainly required from the contractors when they are bidding on public projects. It protects the contracting entity for the owner or authority from frivolous bids.

A tender bond or guarantee is the guarantee provided by a company responding to an international invitation to submit bids or tenders. The tender bond is required to discourage frivolous bids and ensure that the winning bidder will execute the contract.

Contractors who want to bid on public projects are often required to secure a tender or bid bond or tender bond before bidding.

Tender bonds ensure that if the bid is selected, the contractor will perform that specific work for the bidding price.

A public entity can make a claim against that bond as a penalty, even if the contractor fails to go through with the project.

If the contractor failed to do the project at the bidding price, the surety (bank or insurance) will pay the penalty for that and then seek reimbursement from the contractor who posted the bond. 

 

Use of this Term in a Sentence

  • Tender bonds are meant to protect the buyer in the project bidding process.  
  • As a less expensive option than bank credit or cash, contractors prefer to use bid bonds in the bidding process.

 

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