A bid bond is issued as part of a bidding process

Construction bidding

Construction bidding is the process of submitting a proposal to undertake, or manage the undertaking of a construction project. The process starts with a construction estimate from blueprints and take offs....

 by the surety

Surety

A surety or guarantee, in finance, is a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults...

 to the project owner, to guarantee that the winning bidder will undertake the contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 under the terms at which they 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

Performance bond

A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.A job requiring a payment & performance bond will usually require a bid bond, to bid the job...

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.