What is the term for the maximum amount of damages that a surety will cover with a bid bond?

The term that refers to the maximum amount of damages that a surety will cover with a bid bond is known as the penal sum. In bonding, the penal sum establishes the cap on the surety’s liability in the event that the bonded party fails to fulfill their obligations as specified in the bond agreement. Essentially, this means that if a principal (the party who obtains the bond) does not enter into the contract or fails to meet the conditions outlined in the bid, the surety is responsible for paying damages up to that specified amount.

Understanding the penal sum is crucial for parties involved in bidding processes because it delineates the extent of financial protection offered to the obligee (the party requiring the bond). The penal sum functions as a safeguard that ensures compliance and completion of contracts, thereby promoting confidence in the bidding process.

The other options do not accurately describe the concept as they refer to different terms in the surety bonding language. For instance, contract value signifies the total worth of the contract rather than the surety's liability limit, while claim amount and coverage limit do not specifically pertain to bid bonds and the established maximum coverage under them.