The bid bond accompanies a tender and guarantees the owner that if the contractor is the low bidder, the contractor will honour that bid, sign a contract to do the work and provide any further bonding that's required to fulfill the contract. If the bid is accepted by the owner, and the contractor fails to enter into a contract, then the owner must be compensated for the difference between the amount of the bid and the amount for which the owner contracts with another party to do the work. Bid bonds guarantee that the contractor submitting the bid is technically and financially able to complete the contract.
Surety letter (consent of surety)
A tender often calls for a surety letter or a consent of surety from the bonding company to accompany the bid bond. The consent of surety guarantees that the bonding company will provide the specified bonds to complete the contract.
This bond guarantees that the project will be completed according to the specifications of the contract and within a specified time frame. If the contractor does not fulfill their contractual obligations, the surety will make arrangements to complete the project or pay out a bond penalty.
Labour and material payment bond
A labour and material payment bond ensures that suppliers of labour and material used on a project and covered by the bond will be paid.