What is a Bid Bond?
Bid bonds are surety bonds which are used as security on bids submitted on a contract. Bid bonds guarantee that if a contractor is awarded a contract, he or she will execute the contract at the bid price. Since most public sector (government) and many private sector projects require such a bond, bids who are not backed by a bond are usually rejected.
The three sides who are part of the bid bond agreement are the principal (the contractor or bidder), the obligee (government or private party) and the surety bond company underwriting the bid bond.
If a bidder withdraws their bid before the bid opens, then no action can be taken against the bid security, i.e. the bond, or the bidder. If a contractor decides to withdraw their bid after the bid has officially opened, the bid bond is forfeited, unless the bidder can prove by “clear and convincing evidence” that a non-judgmental mistake was made in the original bid. Additionally, if the winning bidder does not enter into a contract, the security is also forfeited.
Bid Bonds and Performance Bonds
Bid bonds also serve as an additional guarantee that bidders are reliable and financially stable because upon being awarded a contract, they also have to obtain a performance bond, which is only issued by a bonding company after careful scrutiny.
If a bid is awarded, the bonding company who issued the bid bond is obliged to provide a performance bond, in case that such a bond is required in the contract. A bonding company who would not issue a performance bond, would not issue a bid bond either.
If, for some reason, a contractor has been awarded a contract but fails to obtain a performance bond, because his bid was not accurate, a claim can be made against the bid bond. The surety will then have to pay for the financial damages, and the contractor will be liable to pay this amount back to the surety.
Bid Bond Cost
Bid bond cost depends on the total estimated amount of the contract you are bidding for. Usually the amount of a bid bond will be between 5%-10% of the total contract amount. In other words, if you are bidding on a $300,000 contract and need to get a 10% bid bond, you will need a $30,000 bid bond.
This is not the amount you will have to pay, though. The price for obtaining a bid bond on contracts is about $100.
Bid bonds don’t cost much, because such a great degree of scrutiny is exercised when assessing the contractor prior to issuing the bid bond so that it is almost certain that he will not withdraw from the bid. Things that bond companies will usually look at are the personal credit score of the owner, the business’s financial reports, how long it has been in existence and other details.
Avoiding Bid Bond Claims
Ultimately, it is in the bidders’ best interest not to do anything which will cause a claim to be placed on the bond. They must make sure that their bids are accurate and that they obtain a performance bond as soon as they have been awarded a contract.
Working with a professional and established surety bond agency is also a form of guarantee, because of the high quality of their assessment and because they can provide support in the case of a claim.
By working with Bryant Surety Bonds you are sure to receive a bid bond and performance bond from an A-rated, T-listed surety bond company. This way you will be backed by a reliable and stable company that you know you can trust.
How to Get Your Bid Bond
In order to apply for a bid bond, all you need to do is follow the steps mentioned on our contract bond applications page. If you’ve never participated in a bid, or simply need more explanations about bid and performance bonds, call us at (866)-450-3412. We will gladly provide you with all the information you need and guide you through the process.