Most Obligees require the posting of a “Bid Security” in the form of a cashier’s check or a bid bond. The amount of the bid security is usually 10%, but can range from 5% to 25% or more. The bid bond guarantees that the lowest qualified bidder will sign the contract
and provide the required surety bonds. If an Obligee awards a job to a contractor,
and that contractor does not sign the contract and provide the required bonds
at the original proposed pricing, their bid security is at risk. The Obligee may use their bid security to cover the difference between that contractor’s bid and the next lowest qualified bidder. In some cases, the full penalty of the bid security may be forfeited. Because a
bid bid only guarantees that the successful bidder will enter the
contract and provided required contract surety bonds, the bid bonds are issued
without a significant fee. Usually the surety charges a small annual bid bond service fee or nothing at all for contractors that generate sufficient contract bond premiums.