What is a bid bond?
A bid bond is a guarantee that, if a company bids on a job and is the low bidder, then that company will accept the final job. If a bidder fails to begin a project after signing the bond, the bond owner will receive compensation. In construction or similar projects that use bid-based selection processes, bid bonds are often used.
The bid bond is designed to ensure that, if you select the bidder, she or he will complete the work. An owner is reassured that a bidder can accept the job at its quoted price when a bid bond is present.
What does Bid mean in bonds?
In the bond world, a bid means that a company is trying to obtain work through a formal bid process. In most cases, these bids are due at a single time and it is the low bidder that gets the work. Because the owner of a project does not want to get a bunch of bids and then find out that the companies are not willing to do the job after they have won the bid, the owner will require a bid bond so that the bidder will accept the job or pay damages if they decide that they want to back out of the project.
Are Bid Bonds Returned?
In general, bid bonds are not returned to the bidder. That is what makes it different from a cashier’s check. However, it’s not a problem because most surety bond companies do not charge for the bid bond. So, if you bid on a job and are not low, then the surety just closes out the bid bond. If you are the low bidder, then the surety company will provide you with a final bond, usually a performance bond and payment bond.
How Much does it Cost for a Bid Bond?
Most surety bond companies do not charge for a bid bond. They are done as a courtesy to clients so that clients can bid on a variety of projects. However, if you bid on a job using a bid bond and win the job, then the surety will charge you for the underlying performance and payment bond. That cost is around 3% of the total contract amount.
Are Bid Bonds Required for Construction Contract bids?
Pursuant to the Miller Act, government jobs that are $100,000 or more require bonds. So, you will need a bid bond (or cashier’s check) to bid on these jobs. Many private companies have also started asking for bonds for construction contracts and require bid bonds. The key here is that you need the bid bond in order to bid on the job.
Bid Bond Guide for Contractors
Everything Contractors Need to Know about Bid Bonds in 2021
An Overview of Construction Bid Bonds
- Types of Bid Bonds
- Accounting for Bid Bonds
- Bid Bonds Online
- Bid Bond Example
- How to Fill Out a Bid Bond Form
- Bid Bond vs Performance Bond
- Bid Security vs Bid Bond
