A bid bond is a type of surety bond that guarantees a contractor will fulfill their obligations if they win a project bid. It protects the project owner by ensuring that the contractor will enter into a contract and provide the necessary performance and payment bonds if selected. If the contractor fails to do so, the bond compensates the owner for any financial losses incurred. Typically required in construction projects, bid bonds are usually a percentage of the total bid amount. They help maintain fairness in the bidding process by discouraging unqualified contractors from submitting bids. This ensures that only serious and capable contractors participate in the bidding for projects.