Bid Bonds Guide
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What is a Bid Bond?
Bid Bond Definition: A guarantee that the bid you submit for a project (usually public construction jobs) is accurate and will post a performance bond. If your bid is inaccurate, you win the project but back out of the job or cannot post a performance bond, a claim can be made against your bid bond which you’re responsible to pay. Learn more about how surety bonds work and how not having a full understanding of them can put your company at risk.
You can apply on our website and find out if you qualify, but not everyone does. Approvals for smaller contractors are based strictly on the owner's personal credit. For larger contractors, credit strength, experience, the type of work being performed and financial strength is all considered.
A bid bond guarantees your bid is accurate and that you will provide a performance bond if you are awarded the job. A performance bond guarantees you will not default on the contract, and that all work will be performed properly.
They are submitted with your proposal to the obligee. If your bid is inaccurate, a claim can be filed on your bond that you must pay, and you will likely lose the job. Bid proposals without a valid bond included are rejected.
If you are awarded the job, you usually will have to provide a performance bond to start the project. Learn more about the process by visiting the construction bond guide.
Usually no, they are separate. However, in Ohio bid bonds automatically become performance bonds if you are awarded the contract.
It is possible. However, not everyone qualifies. Smaller contracts, about $400K and under, are underwritten on personal credit of the owners. It is possible to qualify with minor credit issues; however, there are no bad credit markets available for people with major credit problems.
Larger contractors can get approved with credit issues, as larger contracts requires a more detailed review including business financial statements, industry experience, banking records, supplier references and the owners' personal credit. Underwriting guidelines change based on the size of the contract because surety bonds are a form of credit to you.
Yes. However, your credit must be acceptable and you will be limited to smaller bonds unless you have extensive industry experience and a good amount of equity within the company. You can apply online to see if you qualify for bonding.
It is your pre-approved bond limits. Bond lines include single and aggregate limits. The single limit is the largest bond you can get for one specific job. The aggregate limit is the total amount of bonded work on hand you can have at once.
Your marriage legally joined your assets with your spouse, and the surety will require you to personally guarantee to reimburse them in the event of a valid claim. Your spouse will also have to personally guarantee on your behalf to ensure they are on board with pledging your shared assets. Bonding companies also use spousal indemnification to get an indication of your character. If your spouse will not guarantee you, neither will they.
Work with a construction CPA to ensure your financial statements are properly prepared and presented to qualify for larger contracts.
Working with a professional surety agent is also crucial. Going to a P&C insurance agency is not wise, unless they have surety experts available. Good surety agencies have direct access to the best markets allowing for the lowest rates, and are able to work with your CPA to present your company properly.
What Does a Bid Bond Cost?
Bids bonds for smaller contracts ($350K and under) cost about $100 each or $250 for unlimited bonds for the year. For larger contracts ($350K and over) bid bonds are free of charge. If you want to get a firm quote on a bid bond, please fill out our online application.
Where Can You Get a Bid Bond Form?
Our company can provide you copies of the AIA bid bond form, as we have all industry standard forms on file. However, if the obligee has their own specific bond forms you’ll need to get the forms from them.
Bid Bonds & Performance Bonds Work Together
Bid bonds are the first thing you need in order to bid on public jobs, as they guarantee the bids you submit are accurate and that the surety company will write your performance bond if you win the job. If you are awarded a job, you’ll need to get a performance bond. Learn more about how bid bonds work and what you’ll need in order to get both bid and performance bonds.
How to Get a Bid Bond
You’ll need to send your bond agency the bid invitation letter, bid request form and job specifications that you get from the obligee for all bid bond requests. Check out our construction bonds guide where you’ll find every bond you need to work on public projects. However, you need to provide more than just the items listed above when requesting bid bonds for larger projects.
Construction Bid Bond Claims Can Put You at Risk
You are responsible to pay bond claims in full, which can be as large as the full bond amount (including legal costs). The indemnity agreement you must sign to get your bid bond is a legal contract that pledges your corporate and personal assets in the event of bond claims. Watch our video for an easy to understand explanation of how bond claims work. Unfortunately, most bond agencies won’t take the time to explain how claims can put you at risk and how to avoid them; if this happens when working with a bond agent, it should be a big red flag to reconsider doing business with them. Your bond agency should be your first line of defense against bond claims. You can also learn how to find the right bid bond companies for you.
How to Avoid Bond Claims
Ensure that the bids you submit are accurate and obtain performance bonds when you are awarded contracts to avoid claims on your construction bid bonds. As mentioned above, you are responsible to pay for any bond claims that you cause, which can be as high as the face value of your bond. If claims do occur, find out how our company can save you money on them. If you need help understanding exactly what your bond guarantees you will and won’t do, please contact a bond professional.
What Bid Bond Amount Do You Need?
You’ll likely need to get a bid surety bond that’s a specific percentage of the total estimated contract amount (most commonly about 5-10% of the total contract cost). Keep in mind, the bid bond amount you need will vary by each job and obligee.
Getting Bid Bonds with No Performance Bond Required
In most cases, you won’t be able to obtain bid bonding for projects without performance bond requirements since most surety companies issue them together. Keep in mind, there are job owners who won’t require performance bonds for certain jobs, but these jobs are more risky to work on.
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