What is a Bid Bond?
You have been in business for a while and you keep hearing about people doing work that requires a bond. You might think to yourself it is probably too much of a hassle to become bonded. This is generally not true. If you have a credit score of above 700 and have not filed for bankruptcy, you can probably get bonded for projects up to $400,000 with just your signature. The first step in the process is obtaining a Bid Bond.
When most governmental entities or large general contractors issue a Request For Proposal (RFP) or Bid Solicitation there will be a section that says all bids must be submitted with a Bid Bond to be deemed responsive. The Bid Bond amount usually requested is 5% or 10% of the total amount of the bid. For Federal jobs, the amount of the bid bond is 20% of the total amount bid. If you fail to include a bid bond with your bid, your bid will be rejected. This means you wasted your time and money preparing the bid.
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Why Do They Ask For A Bid Bond?
Placing jobs out for bids is expensive for the owner. There are also issues with the time that a project needs to be completed. A perfect example of this is a school district might bid a job April 1, for the replacement of the roof at a school. They want to have the job started June 1 and finished before school starts in the fall. The bid bond assures the project owner that you have the capability to take on and complete the project if you are selected during the bidding process. In normal circumstances project owners have no idea if a contractor is able to financially handle a project, having a bid bond takes that guesswork out. The bid bond gives the owner the peace of mind that the Bidder has been vetted by a third party, the Surety company.
What Will Happen If The Obligation of the Bid Bond Is Not Met?
If the obligations of the bid bond are not met the contractor and surety are liable jointly for the penal sum listed on the bond. The amount of the penal sum on the Bid Bond is the percentage of the total contract price ie 5% or 10% that was requested by the owner in the RFP. The owner of the project can choose to make a claim on the bond to the Surety company if you fail to sign the contract and start work. The maximum amount of liability is the face value or the penal sum listed on the bond. The Surety will then collect the money paid out from you. This is why you need to be sure that your price estimates are accurate and you can complete the job within the time allotted.
How bid bonds work
When a bid bond requirement is made for a project it keeps contractors from submitting frivolous bids and helps project managers to feel secure with the contractor’s bid. Bond issuing companies do a full and comprehensive credit and financial review before they will provide a Bid Bond for any company. It is important to point out that a surety company will not issue a bid unless they are willing to issue you a Payment and Performance bond if you get awarded the job. Also be aware that your bond limit is based on the full contract price you are bidding on, not the bid bond amount. For example, if you have a limit of $400,000, you could not bid a $500,000 job that required a 5% Bid Bond for $25,000. Your limit is always based on the full contract price.
Federal Bid bond Requirements
Under Federal law, all bidders are required to submit bid bonds for federal projects. Bid Bonds for federal jobs must meet the federal standards. You need to make sure they are Bonds issued by an approved corporate surety. The Department of the Treasury maintains a list of corporate sureties approved to issue bonds for federal projects, Treasury Department Circular 570.
Why Use FarmerBrown.com To Get Your Bid Bonds?
We have a greater understanding of the bonding process than most local agents. They may only write one or two bonds a year. Over 80% of our business comes from clients that were dissatisfied with their local agent. Keep in mind that once an application is submitted with wrong information it is almost impossible to change it. Do not go through the headaches of using inexperienced agents. It is your business and livelihood to use the best the first time around.
- We do not charge for Bid Bonds.
- Dedicated experts who only write bonds.
- Fast Turn around times in most cases in less than 24 hours from submitting a complete application.
- We have direct access to underwriters to get you the bonds you need.
- We are available to answer any questions or concerns you may have.
- Over 20 years experience in the Surety Industry.
- All our Surety Companies are Treasury listed and acceptable to all owners.
These are the basics of bid bonds but there is a great deal more to know when setting them up. If you have any questions you can always contact us. One of the best ways to grow your business is to have the ability to bid the types of projects that require bonds.
f you wish to know more, please call 312-878-2372 to talk with our Bid Bond expert.