Bid Bonds, Municipal Bonds, and Contract Bonds

2007-03-08 10:33:40

( Legal )



Bonds in General
Bonds are documents that guarantee performance of specific obligations. Bonds always guarantee payment of money in the event that the obligation guaranteed is not met. When an obligation for which a bond was issued is not met, the bond is canceled. When a bond is canceled, the value of the bond will be paid to the party which suffered from the non-performance of an obligation.

Bid Bonds
A bid bond is a legal document providing security equal to the amount of the bid. It is often a requirement when bidding for government contracts involving great sums of money. Bid bonds will ensure that if the bidder fails to perform his contractual obligations, the other party will be adequately compensated. Bid bonds are also widely made a pre-qualification requirement when bidding for important private contracts.

Contract Bonds
Contract bonds are similar to bid bonds. A contract bond functions to guarantee that the person giving the bond will perform his obligation under the contract. It is different from the bid bond in that it is actually securing an existing contract. Bid bonds guarantee performance in the event that the contract is awarded to the bidder. Contract bonds are usually given for construction projects, which involve very large sums of money.

Municipal Bonds
Municipal bonds are debt instruments that are issued by local government units such as cities and municipalities. These documents are evidence of your right to receive money loaned to the government. From the government's perspective, the municipal bond is a tool used by these local government units to borrow money from the public to fund its projects. From the perspective of the public, municipal bonds are investments, because of the interest gained from the transactions. Municipal bonds are usually granted special privileges, such as federal tax exemptions. These privileges are given to make municipal bonds a plausible option for people who are looking for low-risk, low-tax investments.


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