A bond issued by a surety on behalf of a contractor that provides assurance to the recipient of the contractor’s bid that, if the bid is accepted, the contractor will execute a contract and provide a performance bond. Under the bond, the surety is obligated to pay the recipient of the bid the difference between the contractor’s bid and the bid of the next lowest responsible bidder if the bid is accepted and the contractor fails to execute a contract or to provide a performance bond.
EXAMPLE:
A contractor that is making a $250,000 bid to provide roofing for an elementary school will have to submit a bid bond of $50,000.
