What is a 'Bid Bond'

A bid bond is a debt secured by a bidder for a construction job or similar type of bid-based selection process for the purpose of providing a guarantee to the project owner that the bidder will take on the job if selected. The existence of a bid bond provides the owner with assurance that the bidder has the financial means to accept the job for the price quoted in the bid.

BREAKING DOWN 'Bid Bond'

Bid bonds help the selection process of a job contract run smoothly. Without them, project owners would have little in the way of assurance that the bidder they select for a job would be able to properly complete the job without running into cash flow problems along the way. By providing bid bonds for their respective bids, each bidder for the project is able to provide sufficient assurance to the owner that the project is within its means.

RELATED TERMS
  1. Bidder

    The party offering to buy an asset from a seller at a specific ...
  2. Invitation For Bid - IFB

    When a company or organization provides detailed project specifications ...
  3. Indirect Bidder

    An entity that purchases Treasury securities at auction through ...
  4. Dutch Auction

    1. A public offering auction structure in which the price of ...
  5. Maturity by Maturity Bidding - ...

    A bond auction that allows bidders (who are underwriters) to ...
  6. Request For Proposal - RFP

    A type of bidding solicitation in which a company or organization ...
Related Articles
  1. Investing

    What's a T Bond?

    Treasury bonds, or T-bonds, are marketable securities issued by the US government, and are available in increments of $100. Bonds have a maturity range of ten to 30 years, with 30 being the most ...
  2. Investing

    How To Create A Real Estate Bidding War

    There are still many areas in the United States that are attractive enough to buyers that you can start a good, old-fashioned bidding war on your property.
  3. Investing

    Negotiating the Bid

    A bid is an offer investors make to buy a security.
  4. Investing

    Explaining Dutch Auction

    A Dutch auction is a public offering auction.
  5. Personal Finance

    How The Auction Market Works

    Here's a look into the online auction market and how to get yourself the best value possible on sites like eBay and Quibids.
  6. Investing

    How Bid Price Affects Liquidity

    The bid price is the amount a buyer will pay for a security.
  7. Investing

    eBay vs. DealDash: Comparing Auction Sites (EBAY, PYPL)

    Learn how the bidding process works at DealDash and eBay, and discover the potential pitfalls when making bids at these auction sites.
  8. Investing

    What Does Bid And Asked Mean?

    Bid and asked is a two-way price quotation.
  9. Investing

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  10. Investing

    AT&T Jostles to Steal Yahoo! From Verizon (T, YHOO)

    AT&T is believed to be one of the bidders offering $5 billion or more. The telecom giant has been working with an investment bank on its bid for Yahoo!.
RELATED FAQS
  1. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  2. What do the numbers that follow the bid and ask numbers in stock quotes represent? ...

    When looking at stock quotes, there are numbers following the bid and ask prices for a particular stock. These numbers usually ... Read Answer >>
  3. When is a takeover bid legally canceled?

    When a firm makes an official bid to take over a target company, a legal offer is created. The firm making the offer becomes ... Read Answer >>
  4. Why are the bid prices of T-bills higher than the ask prices? Aren't bids supposed ...

    Yes, you are correct that the ask price of a security should typically be higher than the bid price. This is because people ... Read Answer >>
  5. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  6. How do day traders capture profits from the difference between bid and ask prices?

    Discover how day traders capture profits from the difference between bid and ask spreads. These spreads blow out during volatile ... Read Answer >>
Hot Definitions
  1. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
  5. Long Run

    A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all ...
  6. Quasi Contract

    A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A normal ...
Trading Center