What Is A Bid Bond?
A bid bond involves three parties: the obligee, the principal, and the surety. The obligee is the owner or developer of the construction project under bid. The principal is the bidder or proposed contractor. The surety is the company that guarantees the bid bond to the oblige, typically obtained through a surety agency. The coverage value of the bond is called the penal sum and represents the maximum amount of damages the surety will cover in the event the contractor fails to honor the terms of the bid bond. Penal sums can range from 5 to 20 percent of the bid amount.