Who claims in the case of a bid bond?

Insofar as the tender complies with the invitation to tender documents, contractors have little leeway for withdrawing from their obligation to sign the construction contract at the quoted price. If the tender was not compliant, it will normally be rejected by the client. If a bid is accepted, generally contractors must agree to sign the contract even if they realize there was an error made in calculating the price. 

If they do not sign the contract, contractors are obliged to compensate the client for the difference between the bid and the amount the client accepts in a contract with another contractor. If the contractor is unable to assume this financial obligation, the bonding company must assume it under the bid bond. However, while the bonding company's liability is limited to the amount of the bid bond, the contractor is liable for the full amount in the event that the additional cost of signing an agreement with another contractor exceeds the amount of the bond, unless the invitation to tender documents limited the contractor's liability when the tender was submitted.

There are no practical differences when a tender is submitted in the form of cash, certified cheque, a bank's letter of credit or a bid bond. However, the bid bond requires the bonding company to pay an amount of money to the obligee of the bonding company bond (the client). This obligation only exists provided that the client accepts the tender and the contractor signs the contract. Refusal to sign the contract brings into being the Surety's obligation to compensate the client, if the contractor fails to do so.

What are surety bonds?

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