Protecting Project Owners From Financial Loss
Occasionally, when contractors are bidding on a contract for a significant construction project, the project owners may want assurance that the winning contractor will honor their bid and enter into the contract as promised — and that’s where bid bonds come in! This surety bond protects project owners against financial losses and helps contractors establish credibility, thereby securing projects.
Here at King Risk Partners, we’re experienced in the contract bonding process and can help you obtain a big bond quickly and at a competitive rate. Contact us today to learn more and speak with one of our experienced surety agents!
What Is A Bid Bond?
A bid bond is a kind of contract bond used as financial security in contract bid proposals to assure project owners that a contractor’s bid is accurate and guarantees their commitment to completing the work if awarded the project. This kind of surety bond is most often used for construction jobs or other large-scale projects with bid-based selection processes. At King Risk Partners, our agents are highly experienced in contract bonding and can help you obtain a bid bond quickly and affordably!
In the event the contractor is unable to follow through, the project owner can file a claim against the bond to recover financial losses. Simply put, a bid bond guarantees that, regardless of what happens, a project’s owner will not suffer monetary losses as a result of anything the contractor does or does not do.
Requirements For Bid Bonds
Bid Bond Amount
Referred to as the penal sum, the amount of a bid bond is typically a percentage of the project’s total estimated cost. While most project owners only require between 5% and 10% of the total cost as the penal sum, federally funded projects may require up to 20% of the bid. Since the exact percentage will vary by project, the amount of a bid bond will vary as well. For example, if a contractor is bidding on a $500,000 project and the requirement listed in the bid documents is 10%, they’ll need to submit a $50,000 bid bond.
When Are They Required?
Bid bonds may be required in large-scale construction projects that utilize bid-based selection processes. Most commonly, bid bonds for public construction projects whether it’s at the federal, state, or local level. This is because public construction projects involve taxpayer money and government agencies want to ensure only serious contractors submit bids. That said, many private project owners also require bid bonds as a form of financial protection during the bidding process.
Bid Bonds vs. Performance Bonds
Once a bid is accepted and the contractor proceeds to work on the project, their bid bond will be replaced by a performance bond. While a bid bond guarantees that a contractor will accept the project and honor their submitted bid price, a performance bond is used to guarantee the contractor will successfully complete the project according to the contract’s terms and conditions.
Frequently Asked Questions
The exact cost of a bid bond, also known as the bond premium, will vary depending on a number of factors, including the bond amount, contract/project size, and the contractor credit score and financial stability. In general, however, bid bonds are often offered at little to no cost to qualified contractors. To learn more about bid bond pricing, speak with a surety agent at King Risk Partners.
Yes, while strong credit health tends to make the bonding process easier, you can still get bonded with poor credit. Here at King Risk Partners, we work with contractors and businesses of varying credit backgrounds. No matter your financial situation, we’re here to help you obtain a low-cost bid bond!
Yes. Unsuccessful bidders will receive the bid bond amount back shortly after the contract is awarded to another party. Successful bidders will have their bid bond amount returned and replaced by a performance bond once the project begins.
Contact King Risk Partners! Our team of experienced agents makes the contract bonding process quick and straightforward. Ready to get started? Contact us today to speak with an agent and take the first step towards securing your bid bond!