This is a common question, and an important one. If your business depends on winning bids to perform construction projects, you will likely need a bid bond at some point, and more likely need this particular type of surety bond on a regular basis. Bonding issues make it much harder to compete for bids, so it’s important to understand how this process works from beginning to end. In this post, the team at Viking Bond Service outlines everything you need to know about bid surety bonds.
The Basics of a Bid Bond
Before discussing bid bonds, it helps to understand performance bonds and payment bonds. Typically, contractors and construction companies must obtain these surety bonds before starting work on a project. A performance bond essentially guarantees anyone hiring construction workers that work will be done correctly or else damages will be paid. A payment bond issues damages if a construction company fails to pay subcontractors, laborers, or material suppliers. In order to safeguard themselves from risk and liability, most developers and project owners require anyone they hire to have a performance bond and payment bond.
A bid bond is essentially a way for contractors to prove during the bidding process that they can obtain the required performance and payment bonds if hired to complete the project. It’s comparable to a pre-approval for a loan. In the same way that pre-approval demonstrates to a seller that a prospective buyer can get a large enough mortgage to cover the cost of a home, a bid bond proves to a project owner that a prospective bid winner can later get bonded as the project contract requires. By securing a bond, the prospect proves they’re serious, qualified, and committed.
How does a Bid Bond work?
A Bid bond works in two ways. First, as discussed above, it proves the bond holder can later obtain any other bonds required. Second, bid surety bonds offer the project owner some protection against the risk of choosing the bid of someone who pulls out of the project before starting. If and when this happens, the project owner may file a claim against the bid bond for damages equal to whatever financial losses the contractor caused by abandoning the bid. The surety company that issues the bid bond backs the payment of all claims, but only as an intermediary. When the surety pays for a claim the bond holder must pay that amount back.
Requirements for a Bid Bond
Bid bonds themselves are relatively easy to get, as long as the bond applicant can also later get approved for a performance bond and payment bond. That depends in large part on the bond applicant’s credit score, financial history, and business strength. It also depends on the surety provider the bond applicant works with. Every provider sets their own requirements for who they approve for a bond, and some providers are more forgiving of bad credit or financial blemishes than others. If you’re worried about meeting the requirements for a bid surety bond, work with the team at Viking Bond Service. We specialize in getting more applicants approved for the bond they need regardless of credit.
How much does a Bid Bond Cost?
A bid bond doesn’t cost much on it’s own. However, by taking out a bid bond, the bond holder also commits to securing a performance and payment bond as well, which cost significantly more than bid bonds. You won’t need to pay everything upfront, but you will need to account for these costs as part of the project budget.
How to Avoid Bid Bond Claims
Bid bonds cost relatively little unless they result in claims, in which case they can cost the bond holder a lot. Fortunately, avoiding claims with bid bonds is simple compared to some other kinds of surety bonds, including performance and payment bonds. You simply need to commit to following through with any bid you win. In practice, that means only submitting bids (and obtaining bid bonds) for projects you have the resources to complete. Follow that rule, and the risk of claims is extremely low.
How to apply for a Bid Bond?
The application process varies for bids above and below $250,000. Below that amount, you will need to provide a standard bond application along with information about the bid, your business, and your bonding history. You will also need to submit to a credit check. Bids above that amount will require additional documentation to help the surety understand your credit risk.
Viking Bond Service – A Nationwide Authority on Bid Bonds
You shouldn’t underestimate the importance of bid bonds, but you shouldn’t stress about getting one either. With the right surety provider, bonding can be a quick, easy, and economical process – one that you use to win more bids on a consistent basis. Rely on Viking Bond Service, a leading surety bond company for everything you need, from service and support to the bonds themselves. Meet our team and ask any questions you may have by calling us at 1-888-278-7389. You can also make contact through the form on this page. Or, if a bid deadline is looming, get the process started by submitting your online application today.