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Bid Bond

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Your Guide to Bid Bonds

What is a bid bond used for? 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, a bid bond is 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.

How Much Do Bid Bonds Cost?

Bid bonds are a flat fee of $100 per contract. After winning the bid a performance bond for the contract will be needed. Performance bonds are typically priced at a rate of 3% of the bond amount.

The Process to Apply for a Bid Bond

If a specific form is required, it should be included in the bid packet you received from the project owner. Otherwise, your SuretyBonds.com surety specialist can use a standard application, which includes the following questions:

  • 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 above $250,000, there will be additional financial credentials needed to process your application.

Your underwriter will issue the bid bond once financial records have been reviewed, the application has been approved and payment has been received. Apply for your bond now.

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Learn More About Bid Bonds For Construction

There was a time when contractors would submit low bids to secure a contract, then increase the price as the job progressed or refuse to complete the project altogether because they had underbid themselves. To combat this problem, project owners began requiring bid bonds, which are a specific type of contract surety bond.

There are three parties involved in the bid bonding process:

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

A bid bond protects owners in two key ways:

  • With bid bonds in place, developers know the underwriter (surety) stands behind the work of the bidding contractor and will provide the necessary performance bond if the contract is awarded.
  • 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 of the lowest bid and the second-lowest bid.

How To 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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