What are Bid Bonds?
Bid bonds are used to guarantee that contractors awarded a contract subsequently enter into the contract. In addition, they provide the required performance and payment bonds. The amount of bid bonds is generally a certain percentage of the price of the contract.
Qualification for a bid bond proves to the project’s owner that the contractor is indeed qualified to undertake the project.
How do Bid Bonds work?
Bid bonds provide financial protection to the obligee (which may be the owner when the general contractor provides the bonds, or the general contractor when the subcontractor provides the bonds) if a bidder is awarded a contract, but fails to execute the contract or fails to provide the required performance and payment bonds. Bid bonds also help screening out unqualified bidders, as a surety will not issue a bid bond on behalf of a contractor that presumably is unable to fulfill the contract obligation. Prequalification means that the surety has indeed investigated the contractor and has resolved that the contractor does have the ability to perform the work per the construction contract. The surety’s specific obligation under the bid bond is stated in the bond itself. The surety is typically obligated to pay the owner for the cost of having to go through the bid process again, if the awarded bidder is unable or unwilling to perform. The surety’s liability is generally limited to the Face Value of the bond, or the Penal Sum thereof, which ranges from 5% to 20% of the total contract price.
Bid Bond Types
Bid Bonds are part of the Contract Bonds. The different type of Contract Bonds are: Bid Bonds, Performance Bonds, Payment Bonds, and Maintenance Bonds.
How much do Bid Bonds cost?
In most cases, Surety Bond companies, DO NOT CHARGE for Bid Bonds. However, in the event that you need to pay a premium, Bid Bonds could range between $100 and $350. The cost depends on the Surety Bond company and your Company (i.e. credit history, experience, financial statements, type of projects, type of contracts, and other considerations).
Do Bid Bonds expire?
The Bid Bond will expire 120 days after execution.
Are Bid Bonds refundable?
The Bid Bonds are not refundable, in most cases, there is no cost for this type of bonds. Should you win the contract, you will need to have a Performance Bond, a Payment Bond, and a Maintenance Bond. The Bid Bond premium will be included in these Bonds.
Bid Bonds with Bad Credit
Your credit score is taken into consideration in your bond analysis. In addition, even if your credit score is not good enough, there are some Surety Companies that can issue the bond. However, they will charge a significantly higher fee that could amount anywhere from 5% to 20% of the total bond amount.
