All About Bid Bonds

Business Bid Bond Contract

What are Bid Bonds?
As a way of showing proof that you are guaranteeing a project by stating that you are able to comply with the bid contract as well as being able to accomplish the job as it is laid out in the contract is what makes bid bonds so important. Basically a bid bond is a form of guarantee which is provided to the project owner on a person has been selected in the bidding process and states that the person is capable of taking on as well as implementing the project.

Generally, project owners are not able to tell if a contractor has the necessary resources and is financially stable enough to take on their project. That being said, with bid bonds in place from a source like, a project owner will feel more comfortable awarding a project to a contractor knowing that if the project were to not be successful, they would be able to collect compensation directly from the surety bind.

What Would Happen if the Construction Bond Obligation Was Not Met?

If a bond obligation were for whatever reason not met, the principal which generally is in reference to the contractor, as well as the surety would be jointly and severally held liable for the bond. There would be penalties which would apply due to not complying with the obligations outlined in the bond.

If there are any additional costs which are incurred by the owner when selecting and awarding another contractor, the principal as well as the surety will be held liable on the bond. The difference here is usually in dollar amounts between the first and second low bid. Oftentimes the penalty sum of a bid bond is around ten to twenty percent of the amount of the bid.

How do Bid Bonds Work?

By requesting a bid bond, contractors are not able to submit bids which are frivolous, this is due to the fact that they would be under the obligation to perform said job, or they would at least have to cover the bond premiums. During the process of bidding, various contractors will provide an estimate as to what the costs of completing the job at hand would be.

Usually what this will mean is that the difference between the lowest bid and the next lowest bid will be covered by the company. There are times however that in order to recover the costs, he bonding company may choose to sue the contractor. The terms of the bid bond are what determine the possibility of a lawsuit.

How Much do Bid Bonds Cost?

Many contractors opt for having the cost of their bid bond included in their general conditions; however that will only occur once a person has been chosen to do the job. Generally, the price for bid bonds for a smaller project will be around $100 to $250, however for larger projects, usually there will be a calculation done in relation to the total cost of the project. It could turn out to be around 1% to 3% of the total project cost and will also be influenced by the financial history and credit history of the construction company in question.