What is a Bid Bond?
The Bid Bond is the first bond needed in the surety process. It is the financial assurance that a bid has been submitted in good faith. The good faith references the contractor's intentions of entering into a contract and supply performance and payment bonds. Bid bonds are required on most construction projects and are typically issued for 5-10% of a contractor's bid proposal. Bid bonds protect project owners, also known as Obligee's, from the cost difference between the low contractor’s bid and the next lowest bidder.
Why Do I Need a Bid Bond?
Local, State, and Federal governments require bid bonds as a tool to prequalify construction companies. Surety companies prequalify contractors for surety capacity, which reduces the need for governments to prequalify contractors. A contractor who can submit a bid bond with their proposal, proves to a project owner that they have the experience, capital, and financial wherewithal to complete the project. By obtaining a bid bond, project owners are able to limit the potential bidders to firms who have already been vetted and underwritten by a surety company.