Define the term "Bid Bond."

The term "Bid Bond" refers to a type of surety bond that provides a guarantee to the project owner that a bidder will enter into a contract if selected. This bond serves as a financial assurance that the contractor will not back out of the contract once they have submitted the winning bid. It protects the project owner from the risk of receiving a bid from a contractor who may later refuse to undertake the project, which could lead to significant delays and additional costs in selecting a new contractor.

By requiring a bid bond, owners ensure that the contractors have a financial stake in the bidding process, encouraging seriousness and commitment. The bond is typically issued by a surety company, which assesses the contractor's financial health and capabilities before issuing it.

Understanding this concept is essential in construction cost estimation and bid package management, as it directly relates to the integrity of the bidding process and ensures that contractors uphold their contractual obligations.