Bid Bond FAQs – Answered!

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Why is a bid bond only 10% of the contract value?

A bid bond is a type of performance bond and it can be issued by the bidder (the party that has been awarded the contract) or by a surety company. A Performance Bond guarantees that if the contractor fails to execute the contract, he will pay any damages to the Employer up to the amount stated in the bond.

The payment of such bonds shall be guaranteed by a deposit of cash (performance bond), or securities acceptable to PGCB (bid bond). The performance and bid bonds may also be obtained from other sources so long as they meet all requirements set forth in these regulations.

The minimum amount required for Bid Bonds and Performance Bonds is 10% of the total contract price. If no minimum amount is specified, the minimum required amount for Bid Bonds is $10,000 and no more than 10% of the contract price.

How is a bid bond different from a performance bond?

A supplier would apply a bid bond is a type of performance bond that bidders must out submit with hired bids for construction projects. A performance bond, on the other hand, guarantees that a company will perform as specified in its contract if it wins the on the job. 

The issuer of a surety bond promises to pay the owner or beneficiary of these bonds any money they might have to pay because of a failure by the contractor or sub-construction contractor to abide by his contract specifications and do this work correctly. How much you will have to pay for your bid bonds depends on numerous factors including your credit history, your financial status, and your industry layer. Unlike bid bonds where there is only one experience.

Once you submit a bid, owners may require bonding as part of reviewing proposals from multiple prospective contractors. In fact, owners and general contractors often require surety bonds to ensure that the work will be completed successfully and without error. 

With a bid bond, you must provide your company’s financial information so the issuer can assess your ability to back up any bids you submit for contracts. Regardless of whether or not you win a project, if you meet all eligibility requirements set by the owner, issuer, and underwriter of the bid bond, you should receive your money back.

Are bid bonds mandatory?

Bid bonds are not mandatory. A bid bond is a form of insurance to protect the owner should any of the bidders default on their bids, if they do default it helps protect the owner from looking for another bidder and starting all over again. It gives them assurance that they will get the project completed if the contractor defaults on his bid after he is awarded the contract.

One must note that in most cases when one is bidding for projects there is no requirement stated in the bidding documents that states that he has to put up a bid bond before they can be considered as a candidate who meets specifications and requirements provided by the Owner.

Where can I get a bid bond?

These bonds can typically be obtained from insurance companies approved by the state in which you’re bidding under contract. The insurer should provide various options (types of bonds and names of providers) depending on local market conditions. If there aren’t any approved carriers in your area, the authority could request that you use a specific insurer.

Bid bonds are typically required by authorities to protect state or local governments against unfortunate cases where bidders don’t place earnest money down on their bid but inevitably win the contract anyway. The bond protects the government by ensuring either: 1) if it’s apparent that they won’t be awarded the contract, they refund the earnest money; or 2) if they do end up graduating onto contract and renege on awarding, then there are some teeth behind getting this money returned to them.

The purpose of these bonds is therefore not for bidders to necessarily get back their cash; rather, it serves as a deterrent for bidders who are unsure about the project or just shady.

When is a bid bond needed?

A bid bond is a common requirement in some public construction projects where bidders are required to guarantee they will, if awarded the contract for the job, pay their subcontractors and suppliers what is owed them on time. Contractors are often asked to post a performance bond as well.

A performance bond ensures that if you abandon the project or fail to complete it according to requirements of the contract documents, upfront progress payments which have been made can be recouped by the owner – before contractors’ suppliers and subcontractors lose money because of your failure or bankruptcy. These bonds also serve as financial guarantees that you will comply with all Federal, state, and local labor laws during construction. They protect both owners and lenders by offering an assurance of financial responsibility on the part of the contractor.

A bid bond is an alternative form of security. It guarantees that if you are awarded the contract, you will sign it and your performance obligations will be fulfilled. Bid bonds also compensate owners for part of their cost savings when prices are reduced since the bond issuer must pay back to the owner any difference between the amount of money saved by owners because bids are lower than anticipated, and the amount forfeited by bidders due to being asked for a bond.

In considering whether a bid bond is needed in a public construction project, owners should know that it could be expensive to ask for one and may not result in a lower bid price. This is because unless contract documents specifically provide for a bidder’s obligation to post a bid bond, no contractor would have to include payment of its bid bond premium as part of his offer. 

Only if the owner requires that bidders provide security in lieu of submitting an earnest money deposit or performance bond, must contractors pay this fee when bidding. In most cases, therefore, subjecting bidders to this added expense will not necessarily lower their bids. Furthermore, since only certified check deposits placed with the owner’s representative will be considered as earnest money deposits, there is no need for a bid bond.

To know more about bid bonds, visit Executive Surety Bonds now!

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