Definition - What does Bid Bonds mean?
Bid bond are bonds that contractors are commonly required to make along with their bids for construction projects. Bid bonds act as insurance for the hiring company. It protects against major losses if the project is abandoned or not properly completed. In the context of insurance, insurance companies often provide bid bonds to contractors.
Insuranceopedia explains Bid Bonds
The reason why developers often require bid bonds from contracting companies is because developers want to make sure that the contractor has enough cash flow to maintain operations throughout the whole project. Construction projects can be incredibly expensive. So bid bonds help to ensure that the contractor will be able to continue paying its employees and making other necessary expenses for the duration of the project. If the project ceases midway through, it could cost the developers a lot of money. So bid bonds mitigate their risk.