Question 1

What is the primary purpose of a bid bond?

Accepted Answer

A bid bond guarantees that if the bidder is awarded the contract, they will enter into the contract and provide the required performance and payment bonds. It protects the owner from a contractor who wins a bid but refuses to sign the contract.

Question 2

What is the typical penalty amount of a bid bond expressed as a percentage of the bid price?

Accepted Answer

A bid bond penalty is typically 5% to 10% of the total bid amount, though some owners require up to 20%.

Question 3

Who are the three parties to a bid bond?

Accepted Answer

The three parties are the principal (contractor/bidder), the obligee (project owner), and the surety (bonding company that guarantees the bond).

Question 4

What happens to the bid bond if the lowest bidder is awarded the contract but refuses to execute it?

Accepted Answer

The surety is liable to the owner for the difference between the low bid and the next acceptable bid, up to the penal sum of the bid bond.

Question 5

What is a 'bid shopping' violation in the context of competitive bidding?

Accepted Answer

Bid shopping occurs when a general contractor uses subcontractor bids to solicit lower prices from other subcontractors after winning the contract, which is considered unethical and is prohibited in many jurisdictions.

Bid & Bonding – General Contractor License Exam

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