Bid Bond: Contractors’ Ultimate Guide

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Before submitting a bid for a construction project, contractors must provide project owners with a bid bond, which is a surety bond. It’s an essential part of the bidding process that helps keep everything fair between contractors. Bid bonds are also necessary for contractors to prove their financial strength. Generally, a surety company will only write a bond if a contractor has the financial means to complete a project.

What Is a Bid Bond?

A bid bond is a surety bond required by owners or developers in a construction bidding process. It’s an inexpensive (usually around $100) way to protect them from low-bidding contractors who fail to complete the job or increase their price once they win the contract. Whether you require a bid or performance bond as your client’s business expands, the fast bond program can expand along with them. A surety agency reviews a contractor’s financial history and background before issuing a bid bond. It includes things like the contractor’s personal credit score, business financial statements and the length of time in business. If a contractor defaults on their bid bond, it can leave the owner with significant costs. They may have to rebid the project or seek the services of a new contractor. The surety agency could sue the contractor for these costs depending on the bond terms.

Why Is a Bid Bond Required?

In a construction bidding process, project owners or developers receive bids from contractors who estimate the costs of a job. The winning contractor is given a contract for the work. A bid bond is a form of insurance that guarantees the owner or developer compensation if the winning contractor doesn’t complete the job for the amount quoted in the bid. It is an excellent way to prevent frivolous or unprofitable proposals and ensure the project is completed according to the agreed-upon terms. Bid bonds are required for all federal projects but may also be needed for other projects. They help show that you’re serious about a project, have the financial stability to follow through with your bid, and can complete the work to a high standard.

How Do I Get a Bid Bond?

Bid bonds are necessary for many contractors because they help prevent frivolous bids and ensure the contractor honors their contract terms. In addition, they also protect owners from unqualified contractors attempting to win projects at a low price. You need to apply through a surety agency to get a bid bond. These agencies will review your credit, financial status and industry experience to determine your bond eligibility. As long as you don’t attempt to take on projects that you can’t handle and keep your finances in order, you should be able to get a bid bond quickly and easily. The size of the bond limit available to you will depend on several factors, including your credit and the project’s budget. Once you have your bid bond, you can submit proposals for construction projects. However, you must know that any error in the bidding process can lead to a claim against your bid bond.

What Is a Bid Bond Worth?

In the construction industry, bid bonds are often required by project owners. They protect the project owner by ensuring contractors will enter contracts if awarded. The bond also guarantees that if the contractor doesn’t execute the contract, the project owner will compensate them for any cost difference. It is known as a claim against the bond.

Bid bonds are usually worth a percentage of the total bid amount, typically 10 percent.

A certain kind of surety bond called a bid bond includes three parties:

  • The principal (the contractor who buys the bid bond).
  • The obligee (the project owner or general contractor protected by the bond).
  • The surety company is issuing the bond.