What distinguishes a bid bond from a performance bond?

A bid bond functions as a financial guarantee that the bidder will accept the terms of the contract if chosen as the successful bidder for a project. This means that if the contractor fails to execute the contract after winning the bid, the bid bond provides a means for the project owner to recover costs incurred from selecting that bidder over others. Essentially, the bid bond acts as a safeguard to ensure that bidders are serious and committed to following through if awarded the project.

In contrast, a performance bond comes into play after a contract is accepted. Its primary role is to assure that the work will be completed in accordance with the contractual terms and conditions. It protects the owner from financial loss should the contractor fail to complete the project as agreed.

This distinction highlights the different roles these bonds play in the bidding and contracting process. The bid bond is focused on the bidding phase, ensuring the bidder’s commitment, while the performance bond secures the actual execution of the contract post-award.