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Question 1
What is the primary purpose of a bid bond?
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?
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?
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?
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?
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.