Bid bonds are required by many projects ( Federal, State, Local or Private) as assurance that a contractor is qualified to perform a certain job. Bid bond is a financial guarantee that if the contractor is awarded the job, they will enter into a formal contract, and provide the required performance and payment bonds. Furthermore, the bid bonds require the contractor to submit the lowest bid on a particular project. On refusal by the contractor to undertake the project, the developer is entitled to the difference between lowest and the next lowest bid. The Bid Bond ensures that the contractor undertakes projects seriously and fulfills his obligations completely.
This bond requires the contractor to submit the lowest bid on a particular project. On refusal by the contractor to undertake the project, the developer is entitled to the difference between lowest and the next lowest bid. The Bid Bond ensures that the contractor undertakes projects seriously and fulfills his obligations completely.
We underwrite this bond based on credit, experience and references and approval of this bid bond program is usually within 24 to 48 hours depending on the amount of the bond.
How Bid Bonds Work
Bid bonds help to prevent contractors from submitting frivolous or inappropriately low bids to win a contract. During a construction bidding process, various contractors (principals) estimate what the job will cost to complete, and they submit their price to the owner (the oblige) in the form of a bid. The contractor who wins the bid is given a contract for the project.
A bid bond serves as a guarantee that the contractor who wins the bid will honor the terms of the bid after the contract is signed. If the contractor fails to honor the terms of the bid—for example, he raises his price for the job after the contract is signed—the contract may be broken and the owner will have to find another contractor for the project, presumably the next-lowest bidder. A bid bond compensates the owner for the cost difference between the initial contractor's bid and the next-lowest bid. Sometimes, the surety agency sues the contractor to recover these costs, depending on the terms of the bond.
Bid Bond Requirements
Under the Miller Act, which is still the standard today, all bidders are required to submit bid bonds on any federal project. Many private firms also adopt this requirement to protect themselves from risk during the bid process. Getting a surety bond is very important if you want your company to become competitive in the construction industry. In some areas, a surety bond is required to obtain licenses and permits. Most importantly, almost all project owners and developers require a bond from you before you can bid on their projects.
Bid surety bond requirements may be met in different ways:
- Surety bonds issued by an approved corporate surety agency
- Surety bonds issued by an individual surety that pledges certain defined types of assets
- Individuals act as sureties to satisfy bonding requirements on federal projects if they have acceptable assets in the required amounts to support the bonds
Acceptable assets include cash or certificates of deposit; U.S. agency securities; stocks and bonds traded on the New York, American, and other exchanges. There are also unacceptable assets. These are assets that may be difficult to liquidate, such as life estate in real property, jewelry, individual sureties, and several others.
How Much Will a Bid Bond Cost?
The cost of a bid bond—the premium paid by the contractor to the surety—is based on several factors, including the cost of the project (bid cost), the location of the project, the owner, and the financial history of the contractor. For small projects, bid bond premiums may be a flat fee, such as $100. For larger projects, the bid bond premium usually is based on a percentage of the total project cost and the penal sum of the bid bond.
Why Get a Bid Bond with Us?
For more information email us or call our agents at 713-785-2138
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