WHAT IS A BID BOND & WHAT DOES A BID BOND DO?
A bid bond is a type of surety bond that is used by contractors when they submit a bid on a construction project. The purpose of a bid bond is to provide assurance to the project owner that the contractor submitting the bid is financially stable and has the capability to complete the project if they are awarded the contract.
As a contractor, you can think of a bid bond as a way to demonstrate to the project owner that you are a serious and trustworthy bidder. When you submit a bid bond with your bid, you are essentially telling the owner that you have the financial backing (surety) to back up your bid and that you are committed to completing the project according to the terms and conditions set forth in the bid.
If the owner accepts your bid and awards you the contract, the bid bond will remain in effect until you provide a performance and payment bond, which is another type of surety bond that guarantees that you will complete the project according to the contract specifications and pay all subs and suppliers. If you fail to provide a performance and payment bond, the owner can make a claim against the bid bond to recover any costs associated with re-bidding the project or finding another contractor to complete the work. Hence the bid bond percentage.
In summary, a bid bond is a form of security that a contractor submits with their bid to provide assurance to the project owner that they are financially stable and capable of completing the project if awarded the contract.
The bid bond is only 5% of the total contract. Why am I being evaluated for a bond the size of the entire contract?
The bid bond is both a percentage of contract security and evidence of prequalification for the ultimate contract value. Thus, consideration of the full contract amount on bid day is necessary while the bid bond is being considered. If the contractor is deemed qualified to perform the contract, the bid bond is issued. If the contractor is deemed unqualified to perform the work, the bid bond will not be approved, notwithstanding that the bid bond is only a small percentage of the contract amount.
What is the cost of a bid bond?
Unlike some other agencies, we do not charge for bid bonds. Once your bond line is established with one of our 80+ sureties, we provide free bid bonds at no cost. We will also supply you with a letter of bondability, also sometimes referred to as a good guy letter, at no cost. The only time you pay is when you're awarded a project and need a PERFORMANCE & PAYMENT BOND.
How do I get a bid bond?
Our prequalification process is designed to cater to your unique requirements. We'll request information from you, which will be customized to the size and type of bond you need. In many cases, a simple two-page application will suffice for needs up to $750,000. Once we have all the necessary details, our underwriting team will prepare a comprehensive file. With this in hand, your agent will approach the market on your behalf and work with our network of surety partners to secure the best possible bond program for your business.