A tender bond, also called a bid bond or a tender guarantee, is an undertaking by the Bank on behalf of its customer to pay a sum of money to the Contractee if the customer wins the tender but fails to enter into the contract. A bid bond is issued as part of a bidding process by the Surety (Bank) to the Project Owner (Principal), to guarantee that the Bidder (Customer) will undertake the contract under the terms at which they bid, if the customer wins the Bid.
The cash deposit is subject to full or partial forfeiture if the winning contractor fails to either execute the contract or provide the required performance and/or payment bonds. The bid bond assures and guarantees that, should the bidder be successful, the bidder will execute the contract and provide the required surety bonds.
This would be mitigated by an adequate analysis of the customer's track record of prior successfully executed jobs; analysis of technical partner’s (if any) competence. A bid bond is purchased when a contractor, or the “principal”, is bidding on a tendered contract. Usually 2% of the proposed contract sum (bid amount).