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What is A Bid Bond?
A bid bond is a contract bond that can be seen as a pre-qualifier when a contractor is in the processes of trying to win over a bid for a large construction project. The bid bond is the first of the 3 bonds required during a construction project and can often be obtained with both performance and payment bonds as well. When a contractor wins a bid, the bid bond is treated as a contact for the project as a whole, promising that the execution of the project will be completed for the price stated in the bid and the performance or quality of the project will be completed to the owners satisfaction. If either of those two things are not to the satisfaction of the project owner, a claim can be made against the bond.
Bid Bonds are important because they keep the bidding process truthful between fellow contractors. Some contractors may try to make low bids on a project in order to win it but then retract the agreement made in the initial bid contract, changing the estimated total of the project or various other things that were initially agreed upon. If this happens, the owner of the project can make a claim on the bid. Bid bonds were created to keep contractors honest and the playing field fair; those who do not follow through with the agreement in the bid bond are likely to lose jobs in the future because of lack of credibility, honesty, and integrity for the process as a whole.
FAQs About Bid Bonds
When are bid bonds needed?When you are bidding for a large construction project, most of the time you must obtain a bid bond. This bid bond outlines the scope of the project and ensures that a performance and payment bond can be obtained following the winning of the bid. If the bid is won, the project must follow the outlined project scope otherwise the owner of the construction project can make a claim against the bid.
What is the cost of a bid bond?Bid bonds are usually minimum in cost. Because they are the initial step in obtaining a performance and payment bond, the bid bond will cost anywhere from free to roughly $350 (with your personal credit and bond history coming into play). Once the bid is approved, a performance bond is required which is when it can get slightly more costly, usually costing 1%-5% of the underlying contract price.
Why are claims made against bid bonds?A claim against a bid bond usually occurs when the contractor underbids for the project and must back out of the initial agreement. This usually happens when the contractor misses a major expense in the initial outlined scope of the project. When this happens, they are often denied payment or performance bonds which are required bonds for any large or public construction project.
How can I go about obtaining a bid bond?All you have to do is call The Surety Place and we can handle the rest. We can get you the bid, performance, and payment bond that you need to win the initial bid for the project and we can do this in any state, no matter the size of the bonds needed. We know how important it is to have a surety company on your side who does the hard work for you so that you can get back to running your business!
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Bid, Performance, and Payment Bonds
There are generally 3 parts to a construction bond; bid bond, performance bond and payment bond. The three parts are used together but are all completely different.
- Part of the bidding process
- Guarantees that if the contractor wins the bid, they will be able to fulfill the contract according to the terms of the bid including posting of the performance bond
- Bid bonds range from 5-10% of the full contract bond
- The contract owner, the obligee, will require that a bid bond be obtained before the bidding process begins
- Most federal, state, and local governments require a performance bond for public projects over $150,000 for quality assurance purposes
- The performance bond ensures that the principal provides quality performance of work during the entire project
- The performance bond can also protect the principal in the case that the contractor goes bankrupt during the project
- Performance bonds are lower than bid bonds usually, costing only 1% of the total project — although credit score, financial status, and bond history will play a role in overall cost and premium rates
- A payment bond is issued to a contractor for a project that ensures subcontractors, laborers, and material suppliers are paid for the work they do in a timely manner
- Payment bonds ensure that the right people get paid for their work no matter the outcome of the project
- A payment bond is an agreement between the person requesting the bond (usually subcontractors, material suppliers, or laborers) and the principal (usually a contractor) who holds the bond, acknowledging that if payment is not made in a timely manner, the obligee can make a claim on the payment bond and the surety will pay the compensation to appropriate parties
- A payment bond is typically issued with a performance bond after a bid is won and depending on whether it is federal or private, this surety bond is usually required before commencement of a project
Why Choose The Surety Place for your Bid Bond Needs
The Surety Place, founded in 2002, began with one goal in mind, to bring innovation and a high level of service the surety bond industry had yet to see. We have been an industry leader from the start; a people first company that you can trust, offering access to agents, specialty programs, and businesses to achieve the right solution at the right time, every time.
A People First Company
What sets us apart from other sureties is that we establish a relationship with you in order to truly understand your business focus whether large or small, complicated or difficult, so that we truly know how we can be of service to you and minimize some of your pains as a business owner. As small business owners ourselves, we know how hard it can be to get started and grow your business. We are here to help alleviate some of those stresses by getting you the bid, performance and payment bonds needed to bid on larger projects. Your needs as a business owner will be heard, and solutions will be found and implemented in a timely manner. As one of the only true specialists in the industry we supply access, partnerships, and specialty programs with numerous “A” rated sureties across the nation. The Surety Place is here to help you service all of your customs bond needs with no appointments or contracts necessary, yet another thing that sets us apart as one of the leading sureties in the industry.
Our industry knowledge and expertise coupled with our ever increasing list of specialty programs, give us the unique ability to write your bonds when no one else can. When you put your trust into our team of experts, you and your business will never be disappointed.
Our Expert-Level Team
We set our standards high, which means we provide our clients with nothing but the best team. Our dedicated account managers are highly trained underwriters who are able to provide our agents and clients with a tailored bonding solution for their individual or corporate needs. Our team continues to educate themselves on the ever-changing surety bond industry and we promise that we are able to provide the information you need and answer any questions you may have. Whether you bond is big or small, simple or complicated, Surety Place is built to find you the right answer. Poor credit, financial hardship, fast growth, or just getting your company off the ground? We have options for you too.