3.6.2 Bid Bonds

A bid bond is an assurance to the owner that if selected, the contractor will actually proceed with the contract at the bid price. If the contractor does not, the bid bond becomes payable to the owner as compensation for damages sustained.
Application Issues

1. The bid bond may not stipulate that the surety providing the bond will also provide subsequent payment and performance bonds_. Such language protects the surety against having to provide such bonds for questionably bid contracts that would have been awarded. For this reason, many bid procedures also require a surety letter of intent to provide payment and performance bonds if the contractor is awarded the project.
2. Bid mistakes may be justification for not being held responsible for a bad bid_. Refusal of a successful bidder to go ahead with the contract is usually because of a significant error in the bid. If the contractor can offer “clear and convincing” proof of such an error, there is a chance that both the contractor and surety will be relieved of the liability. Rules of such a mistake are tough, and include the ideas that the mistake:

• Must be one of fact, and not one of law or judgment.
• Must be of such grave consequences that enforcement of the contract would be unconscionable.
• Must relate to a material feature of the contract.
• Must not have come about through the contractor’s culpable negligence.
• Must not prejudice the owner except to loss of bargained-for performance.
  It should be clear that if the contractor’s mistake was this bad, the surety will not jump at the chance to guarantee the contractor’s next bid.
  

3. A material change to the contract will void the principal’s obligation to the bid_. If a material change in the terms and conditions of the contract that could not be reasonably anticipated when the bid was submitted occurred after the bid, the principal may be entitled to withdraw its bid.
Examples of material changes may include:

• Delay in awarding the contract beyond the time specified in the invitation to bid
• Changes in the method of construction from those specified in the bid documents
• Changes in the materials specified
• Massive “corrections” of documents that otherwise would have resulted in significant change to the bid price