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Guide to Bid Bonds

Project developers have contractors file bid bonds to guarantee they provide serious bids and are financially stable enough to complete the project.

To put it simply, these bonds are used as financial security for contract bid proposals — especially for large projects such as commercial developments. Without filing the required bond, a contractor’s bid will automatically be disqualified from the bidding process.

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By issuing a bid bond, your underwriter also agrees to issue a performance bond for the contract later on if the bid is accepted. For this reason, the application process is similar to that of performance bonds. If your bid will be submitted for $250,000 or less, you’ll have to answer the following questions during the application process.

  • How much is your bid?
  • When is the bid date?
  • Have you ever been bonded before?
  • How long has your company been in existence?
  • What is your personal credit score?

If you plan to submit a bid that’s more than $250,000, you’ll have to provide additional financial credentials when submitting your application. Your underwriter will issue the bond once financial records have been reviewed, the application has been approved and payment has been received.

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For projects valued at $500,000 or less, our expert surety specialists need at least 48 hours to process applications and underwrite bid bonds. Projects valued at more than $500,000 could require additional time for processing and underwriting.

If a specific form is required, it should be included in the bid packet you received from the project owner. Otherwise your surety specialist can use a standard form.

Learn More About Construction Bonds

There was a time when contractors would submit low bids to secure a contract. Then they would increase the price as the job progressed or refuse to complete the project altogether because they had underbid themselves and could not profit from the job. To combat this problem, project owners began requiring bid bonds, which are a specific type of contract surety bond.

  • The principal is the contractor who purchases the bond to guarantee financial integrity.
  • The obligee is the government agency or other project owner that requires the bond.
  • The surety is the underwriter that issues the bond, thus backing the contractor’s ability to secure the bid.

These construction surety bonds benefit project owners in two key ways. With bid bonds in place, developers know the underwriter stands behind the work of the bidding contractor and will provide the necessary performance bond if the contract is awarded. Secondly, developers receive financial security in case the contractor with the lowest bid is awarded the contract and backs out. In this situation the developer can make a claim on the bond to recover the difference between the lowest bid and the second-lowest bid.

Withdraw Your Bid Without Losing Your Bond

Contractors can only withdraw a bid without losing the bid security (a.k.a. bond) if the withdrawal happens before the developer opens the bid. Sometimes developers might allow a bid to be retracted before it is awarded without taking action against the bidder. However, once the bidding is complete and a contract is awarded, any bid withdrawal will result in the automatic loss of the bid security.

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