Used in conjunction with construction bidding processes. The bond acts as a
guarantee that, if awarded the contract based on the bid submitted, the
contractor will enter into a contract to perform the work at the price quoted.
If the contractor declines to enter into a contract to perform the work at the
agreed-upon price, the bid bond will reimburse the obligee (owner or upper-tier
contractor) the difference between the defaulting contractor's bid and the
next lowest bid, up to the penal sum of the bond.