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Bid Bonds

Bid Bond

Building projects can impact public safety and cost millions of dollars. Before a project can be built, the project owner will issue a call for bids. Various companies submit proposals and cost outlines to perform that work. Then, based on those bids, the company that offers the best combination of ability, competence, time frame, and budget wins the project. A great deal of time, energy, money, and trust is invested based on the accuracy of the bids. A bid bond assures the project owner that the bid will be accepted once it is awarded. A subsequent performance bond demonstrates that a bidding contractor is honest and capable of doing the work.

What is a Bid Bond?

A Bid Bond is a type of surety bond that guarantees a project owner that the bidding construction company can and will complete the contract if they are awarded the project. By definition, a bid bond provides a financial incentive for the winning bidder to provide an honest evaluation of their ability to complete the project for the budget and on the timetable they describe. It also creates a mechanism for an injured party to recover compensation if the winning bid fails to accept the project.

Once the project is awarded, the contractor will be required to obtain a performance bond that requires the contractor to undergo a qualification process where their financial stability, capabilities, and reliability can be verified.

Like any surety bond type, there are three essential parties involved in each bid bond:

  • The principal is the contractor who purchases the bond to guarantee financial integrity.
  • The obligee is the developer or project owner who asks for the bond.
  • The surety is an underwriter who issues the bond to guarantee that the contractor can perform the contract, should the obligee award it to them.

How Do Bid Surety Bonds Work?

If a bonded construction company wins a project but fails to follow through with the work, the project owner must go to the next desirable bid received. They can then file a claim against the bid bond to cover the difference between the winning bid that was withdrawn and the second-place bid. Normally, the surety thoroughly investigates all claims. However, since there's no question about whether or not a bonded contractor withdrew from an awarded contract, the surety will settle that claim in full. Then they will turn their attention to collecting the debt from the principal.

By entering into the surety bond agreement, the principal agrees to accept financial responsibility for a winning bid. Therefore, they cannot withdraw the bid after it was awarded without forfeiting the bid bond. The only way to avoid bid bond claims is to follow through with projects after winning a bid. It's also important to emphasize that the claims against the bid bond can jeopardize the principal's ability to obtain future bonds.

Any money the surety pays out on a bid bond must be repaid by the bond principal.

Who Needs to Have a Bid Bond?

The owner of any building project determines whether to require a bid bond. All public sector projects require a bond on the public's behalf. Most large projects need you to get a bid bond when submitting your proposal. Without a bond, your bid will never be considered for these projects. Bonds are less likely to be needed by contractors working on smaller projects (e.g., residential projects), but it's not unheard of. The reality is that any contractor may need to provide a bid bond at some point in their career (or many points), so it is wise to be familiar with the process. Whether this is your first bid surety bond or fiftieth, Viking Bond Service makes it easier to get what you need.

How Much Does a Bid Bond Cost?

Typically, the bid bond cost is very low. They cost anywhere from nothing at all to around $350. A performance bond will be required if the contract is awarded.

The performance bond cost is typically 1-5% of the bond's value. The better your credit rating, the lower the premium you will pay. However, the bond value is determined by the project owner who requires the bond. So, bond values can vary widely based on the size of the contract being bonded.

The Process to Apply for a Bid Bond

Applying for a bid bond is very similar to applying for a performance bond because when a surety provides you with a bid bond, they agree to underwrite a performance bond in the event that your bid is accepted.

To obtain a surety bond for your bid, you will need:

  • The amount of your bid
  • The date of the bid
  • Your bonding history (have you received bonds before)?
  • Company history – how long you've been in business.
  • A credit check.

We provide "Fast Track" programs for contracts of $250,000 or less. Our contract performance bond specialists can help get your bid bond request started on the correct path to get your bond when you need it. For bids on projects above $250,000, you will need to provide additional financial information. At Viking Bond Service, we make getting your bid bonds quick and stress-free.

Request a Free Bid Bond Quote

Rely on Viking Bond Service to make the application process seamless on route to getting you a quote ASAP. Just call us at 1-888-2-SURETY (1-888-278-7389) or contact us online. We look forward to becoming your surety bond partner!

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