Example:

Acme Corporation is conducting a Request for Proposal (RFP) for a new software system. As part of the bidding requirements, the procurement team requests that all bidders provide bid security equal to 2% of their total bid amount. Bidders can choose to submit a bid bond or irrevocable letter of credit as their bid security.

Skyline Solutions, a software development company, submits a bid for the project along with a bid bond from Zenith Insurance. The bid bond guarantees that Skyline Solutions will enter into the contract and provide the necessary performance bonds if their bid is accepted.

The bid security provided by Skyline Solutions and other bidders gives Acme Corporation's procurement team confidence that the bidders are committed and financially capable of executing the project. In the event that the winning bidder withdraws, Acme Corporation can use the bid security to cover the costs associated with re-tendering the project or accepting the next lowest bid, protecting their financial interests and maintaining the integrity of the bidding process.