Bid bonds are an essential step in the tendering process, whether public or private. They are required to ensure that the selected bidders will honor their contractual commitments if chosen for a contract.

When a company wishes to participate in a tender, it must provide a bid bond to the project owner, whether public or private. This bond, typically in the form of a bank guarantee or financial commitment, assures the project owner that the selected bidder will comply with the contract terms. If the bidder fails to fulfill its contractual obligations, it is liable to pay a contractually specified amount to the beneficiary of the guarantee.

Public authorities often require such guarantees to ensure that projects funded by public funds are successfully completed. Similarly, some grants or government aid may be conditioned on the presentation of a bid bond.