Bid Bonds for Public Works Projects

In almost all cases when a contractor is going to submit a bid for any project that is funded with public funds a bid bond will be required. Most of the public construction work is accomplished by private sector firms. These jobs are awarded to the lowest responsive bidder through a competitive sealed bid system. Surety bonds play a vital role in making the bidding process work.

The use of the Bid Bond is to keep unqualified bidders out of the bidding process by assuring the contractor will honor its bid and will sign all contract documents if awarded the contract. Further it shows that the contractor will be able to provide the required performance and payment bonds if awarded the job. If the lowest bidder fails to honor these commitments, the owner is protected, up to the amount of the bid bond, usually for the difference between the low bid and the next higher responsive bid. In most cases this going to be five to twenty percent of the bid amount. The use of corporate surety bonds makes it possible for the government to use private contractors for public construction projects under a system where the work is awarded to the lowest responsive bidder. Political influence does not come into play and the government is protected against financial loss if the contractor defaults. An added benefit is that certain laborers, material suppliers and subcontractors have a remedy if they are not paid, all without consequence to the taxpayer.

In most cases a cashier's check can be submitted with the bid in lieu of the bond. This can be a risky way to proceed, as the contractor would lose the money if they were unable to secure the payment and performance bonds. This method is sometimes used when time is short and the contractor is unable to secure the bid bond in time for the bid deadline.

The cost of the bid bonds for our clients are no more than $50 per bond, which we will refund if you are the successful bidder and secure the payment and performance bond with FidelityandSuretyBonds.com.

For bid bonds under $250,000 we have a simple one page application, that is based almost exclusively on the owner's personal credit. The Owners credit score should be 700 or greater. We can normaly get you your bid bond within 24 hours of a completed application.

WHAT IS A SURETY BOND?

In its simplest form a surety bond is a contract among at least three parties. The first is designated the “OBLIGEE”, which is generally the party requesting you to get a bond for work you are about to perform or to guarantee that you will perform some obligation. The second is designated the “PRINCIPAL”, this is going to be you the party who will be performing the contractual obligation. Finally there is the “SURETY”, this is the company that will assure the OBLIGEE that you you will meet your contractual obligations.

The simplest way to explain a Surety Bond is that if you do not preform what you contracted to perform the SURETY will perform the contract.

The PRINCIPAL (you)will pay a premium (usually annually) in exchange for the bond. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the PRINCIPAL for reimbursement of the amount paid on the claim and any legal fees incurred.

What are the different types of Surety Bonds?

There are many different types of Surety Bonds. The most common are Bid, Performance and Payment, License and Permit and Lost Instrument Bonds.