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Bid bonds are submitted with your proposal to the obligee (the person or entity requiring the bond). If your bid is inaccurate, you win the project but back out of the job or cannot post a performance bond,a claim can be filed on your bond that you must pay, and you will likely lose the job.

This often happens when a contractor underestimates the costs by missing a major expense for the job, and as a result is unable to get approved for the performance bond required to perform the work.

It’s important to keep in mind there are costs for the obligee to set up and execute a proper bidding process for a public job.

The obligee has to employ architects and engineers to evaluate the bids from different contractors, organize pre-bid meetings to go over project specifics with contractors who have expressed interest in the project, and promote the actual bid date so there are plenty of contractors to choose from. The bid bond ensures the obligee isn’t left out to dry if you decide to abandon the project.

Bid proposals without a valid bond included are rejected. If you are awarded the job, you usually will have to provide a performance bond to start the project.