A bid bond is important to show proof of guarantee to the project owner that you can comply with the bid contract and also that you can accomplish the job as laid out in the contract. A bid bond is a guarantee that you provide to the project owner stating that you have the capability to take on and implement the project once you are selected during the bidding process. Normally, project owners do not know if a contractor is financially stable or has the necessary resources to take on a project.

However, because of a bid bond, they will be more comfortable to award a project to a contractor knowing that if the project fails, they can collect compensation from the surety bond.

Requesting a bid bond will keep contractors from submitting frivolous bids, because they would be obligated to perform the job, or at least pay the bond premiums.

Bond-issuing companies perform comprehensive credit and financial reviews before agreeing to provide bonds for a company. During bidding, various contractors estimate what the job will cost to complete. They submit this price to the owner in the form of a bid. This usually means that the bonding company will pay the owner the difference between the lowest and next lowest bid.

Sometimes, the bonding company may sue the contractor to recover these costs. The possibility of lawsuits depends on the terms of the bond.