It protects the owner against a bidder who cannot or will not stand behind its number. On federal construction work, the bid guarantee must be at least 20% of the bid price, capped at $3 million. Many state and local jobs set their own percentage, often 5% to 10%. The security can be a surety bond, a certified or cashier's check, or sometimes an irrevocable letter of credit. A surety-backed bid bond is the most common form. It also signals that a surety has already vetted the contractor's finances and capacity.
If the low bidder then refuses to enter the contract, the owner can collect the difference between that bid and the next acceptable one, up to the bond amount. Missing or mis-sized security gets a bid tossed at opening. Nonlinear's Spec Takeoff surfaces the bid-security requirement and amount early in pursuit screening, so the bonding conversation with your surety starts before the deadline.
