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Bid Bonds

Bid bonds

Before a contracted project begins, the project owner will issue a call for bids outlining what they need built and calling for various companies to submit proposals and cost outlines to perform that work. Then, based on those bids, they select the best option based on cost, experience, timelines, and a host of other factors. Since the details of the bid inform so much of the selection process, project owners expect their final choice to deliver exactly what the bid promised. That's where bid bonds come in.

What is a Bid Bond?

A Bid Bond is a type of surety bond used to ensure that a contractor bidding on a project or job will enter into the contract with the obligee if awarded.

There are three 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.

Why Are Bid Bonds Required?

Bid bonds protect a project owner in the event that someone submits a bid and gets rewarded the contract, but pulls out of the project before it starts, insists on receiving more money to complete the work agreed upon or is unable to obtain the agreed-upon construction bonding. When someone fails to deliver on the bid they've submitted, the party who hired them - and who is now facing financial damages because of project delays - may seek compensation through the surety bond. Since the surety bond guarantees payment for any valid claims, it ensures project owners can recoup their costs when a bid falls through. Just as importantly, since the surety bond holds the bonded party responsible for failed bids, it discourages people from submitting bids they can't deliver on. Bid bond requirements give confidence to project owners and investors that their financial interests are protected. Expect to see these requirements frequently if you're involved with construction or contracting.

When Do You Need a Bid Bond?

Bid Bonds are required to bid on a contract. The Bid Bond guarantees that the Contractor will be able to secure a Performance Bond and/or Payment Bond in the event that the Contractor wins the bid. When bidding on a project requires a bond, it makes the most sense to seek out a bond as early as possible. This is a small but crucial part of the bidding process. Failing to get a surety bond makes it impossible to win a bid, so this should be a top priority. Make sure you get a bid bond ASAP by working with Viking Bond Service. We have processes set up to ensure the process moves quickly every time.

Why Do You Need a Bid Bond?

Bid Bonds are meant to ensure that contractors' bid proposals are serious by demonstrating to the developers that the contractor has the ability to complete the bid. Project owners and developers began requiring Bid Bonds to combat the practice of contractors submitting low bids and then failing to complete the job or increasing the price of the job once they had been awarded the contract. Since the principal must go through the full performance bond qualification to obtain the bid bond, the obligee can be assured that the bid makes sense, as the surety is willing to bond the contractor. Bid bonds may seem burdensome to some contractors but they help the contractors bid by showing the project owner that the surety is confident enough in the contractor to provide bonding based on the bid provided.

Bid Bonds Benefit the Developers (Obligees) in Three Ways:

  1. A Bid Bond demonstrates that the contractor (the principal) will be able to provide a Performance Bond if they are awarded the contract.
  2. If the developer awards the bid to a contractor who backs out, the developer can then make a claim on the bond for the difference between the principal's bid and the next lowest bid.
  3. A Bid Bond qualifies bids by ensuring that all bids are serious proposals.

Bid Bond Vs. Performance Bond

Though related, these are two distinct surety bonds that are often lumped under the title "construction bond." A bid bond obligates the bonded contractor to meet the surety bond requirement specified in the contract or face penalties. The performance bond, in turn, binds the surety to the contractor's obligation to complete the contracted project within the parameters set in the contract. Another bond known as a payment bond is also in the mix, which holds the principal accountable if he doesn't pay subcontractors or suppliers.

Bid Bond Vs. Contract Bond

A bid bond is one form of contract bond. A performance bond is another, as well as other types of bonds such as payment bonds, supply bonds, subdivision bonds and more. Contract bonds include any type of surety bond linked to the successful completion of a contract. To put it differently, the bond protects one party in the contract from misbehavior committed by the other party. Since companies typically submit bids to win contracts, bid bonds factor into most contractual agreements. If you need a bid bond, you likely need other types of bonds, such as the performance bonds outlined above. And if you need a bid bond once, you likely need it multiple times - every time you submit a bid, perhaps. That's why it helps to have a long-term bonding partner you can turn to whenever you need a surety bond. Viking Bond Service serves as a partner for countless contractors and construction companies across the country. We're eager to earn your trust as well.

How Much Are Bid Bonds Written for?

A Bid Bond is issued in the amount of the contract bid, with the same standards as that of a Performance Bond. Essentially that means whatever amount the contractor believes to be sufficient to bid for the contract will be the amount used to underwrite the bid bond.

How Much Does it Cost to Get a Bid Bond?

Typically Bid Bonds are inexpensive. They cost anywhere from free to around $350. If the contract is awarded, the performance bond will be required. Usually, the performance bond costs between 1% and 5% of the value of the "penal sum," which is the amount that the surety will need to pay to the obligee in case the contractor breaches the contract. The cost of Bid Bonds varies based on several factors, such as the contract terms, where the bid was executed, and the bid amount.

Can You Get a Bid Bond With Bad Credit?

If you think your credit score or financial history could jeopardize your chances of getting a bid bond, your choice of a surety provider is very important. Some refuse to work with bad credit applicants. Others understand that bad credit doesn't always mean someone should be ineligible for a bond. Viking Bond Service falls into the second camp. We believe in working to find solutions for all our clients, which is why we created a program specifically to help more people get approved and get bonded! Learn more here.

How Are Claims Handled for Bid Bonds?

Since a surety company guarantees payment for all valid claims, it normally launches a comprehensive investigation to determine whether a claim has merit. This works differently with bid bonds, though. Since there's no question 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 agreed to accept financial responsibility for all claims and, therefore, cannot avoid the payment responsibility. Though it may seem obvious, it bears emphasizing - 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 ability to obtain future bonds. Since surety agencies factor bonding history into the application decision, claims can signal someone as high risk and make it harder to get the bid bond necessary to win construction contracts. The smartest long-term business decision is to avoid bid bond claims by any means necessary.

What if You Decide to Withdraw Your Bid? Will You Lose Your Bid Bond?

If you withdraw your bid before the developer opens it, then you will not lose your surety bond. You will lose your Bid Bond if you withdraw your bid after you have been awarded the contract. If you have detailed questions about how bid bonds affect either the principal or the obligee, we invite you to speak directly with one of the bond experts at Viking Bond Service.

What Do You Need to Secure 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 provide a Performance Bond in the event that your bid is accepted.

To apply, 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.
  • Your credit score.

For bids on projects above $250,000, you will need to provide other financial information as well. Contact Viking Bond Service today for a free consultation to find out what you need to secure your Bid Bond.

Why You Should Find a Bid Bond Partner

If you need a bid bond once, you will probably need one again. Contractors and construction companies typically need bid bonds regularly. It may total dozens or hundreds over the course of a career depending on the kinds of projects involved. Each time you need a bid bond, you will need to apply, which takes time, and pay the premium, which takes money - the two most important assets for any business owner. Therefore, you want to find a bond partner who makes it quick and affordable to get a surety bond, the first time and every time after. Since bid bonds are so closely linked to your business interests - for better or for worse - it's beneficial to find a bond partner who can issue you bid bonds along with the many other types of surety bonds you probably need. It doesn't make sense to work with multiple different companies or to switch companies each time. Instead, find a bond partner that's consistent, dependable, and fair from the first time onward. Viking Bond Service is the bond partner for countless contractors across the country. Why? Because we earned their trust and kept it. Your search for an every-time bond partner is over - Viking Bond Service has you completely covered.

Get Your Bid Bond Fast

We provide "Fast Track" programs for contracts of $250,000 or less. Our contract performance bond specialists can help get your bond request started on the correct path so that you can get your bond when you need it. Rely on Viking Bond Service to make the application process seamless on route to getting you a quote ASAP.

Request a Bid Bond Quote:

Viking Bond Service is eager to help you get the bid bond you require. To get more information about bid bonds, performance bonds, or surety bonds generally, call us at 1-888-278-7389 or use the contact form on this page. You can also request a free quote at your own convenience through this easy form.

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