Since there are some contractors who fail to comply with the professional and contractual agreements they make, a bid bond is a common requirement of doing business when bidding on contracts. Specifically, it is evidence that your financial status will permit you to complete the task you are bidding on and will do so in the manner that you have agreed to. However, there are some details about a bid bond that you should be aware of, since their existence has caused a few challenges in recent years. Therefore, it is a good idea to consider the following information before committing to a job that requires the use of a bid bond.
A Bid Bond Will Be Forfeited If You Fail To Comply With The Terms Of The Bid
It is important to note that bid bonds are the norm for most civilian construction projects and required by law for federal contracts. As such, they are likely to be necessary for the majority of projects that you are interested in receiving. If for any reason you fail to complete the job as you agreed, the bond money is forfeited.
A Bid bond is a type of surety bond. It functions as a guarantee to the company associated with the project that if they choose you for the work, you will be able to accept it and provide the agreed-upon services. Your cost for a smaller job is often no more than $250, but a bid bond for bigger jobs can be as high as 3% of the total cost of the job. Therefore, you need to have a clear understanding of all the contractual details, or there is a risk of losing what can be a significant sum of money.
You Don't Have To Personally Have The Cash To Get A Bid Bond
One common misconception about bid bonds is that they require you to have the money in the bank to pay for the bid bond. Fortunately, the truth is that a bid bond is an example of a surety bond and is provided by a third-party, known as the surety, on your behalf.
The surety will consider a number of factors when determining your eligibility for a bid bond, as well as your expenses for doing so. For instance, you will need to establish that you are credit worthy, run a stable business and will be able to obtain a performance bond prior to starting the work. The performance bond is separate from the bid bond. As the name suggests, it guarantees the quality and completion of your work, and will pay for any repairs or to hire a new contractor if there are any issues with your completion of the job.
In conclusion, a bid bond is a common business practice for many contractors. As a result, you are likely to find the above information to be quite useful when you need to provide a bid bond for the first time as a new contractor.
