Effective DIY Strategy

Bid Bond Companies – Where to Get One

Written By: admin - Mar• 03•18

When it comes to public construction, contractors who want to take on a project give what you call a bid bond to the project owner. To know more about bid bonds and how to apply for them, here are a few basic information that would help if you take an interest in joining bids for construction projects.

What is a bid bond?

A bid bond is a guarantee that shows the project owner that the contractor who passed the bond will be able to comply with their side of the contract. This implies that the contractor giving the bid bond has the resources to do the project and to finish it. Aside from giving assurance, a bid bond acts as a contract that obliges the contractor to do his end of the contract.

Bid bonds are given before the project commences. This is most often the case for public constructions wherein the project owner, the government, picks from interested contractors. Contractors show interest in projects by passing a bid bond. There are commercial projects that undergo this process as well.

How do bid bonds work?

Contractors who want to take on a project would approach third-party guarantors or bid bond companies. The latter looks at the books and the resources of the said contractor and investigates if it is in his capacity to do the project. Bid bond companies also consider past projects and the overall experience of the contractor. These are gauged and compared to the details of the project being considered. The experience should show that the competence of the contractor matches the quality requirements of the project. His resources and financial statements should show that there would be no problem in terms of providing manpower and materials. If they are qualified, the bid bond company will write a guarantee to be given to the project owner.

For bid bonds to be considered, a cash deposit is given that was bought from a bid bond company. Once all bid bonds are given, the project owner gets to pick which contractor to give the project to. In most cases, the project owner awards it to the contractor who has the lowest bid.

How much are bid bonds?

Bid bond costs vary depending on the size of the project. Smaller projects can range from $100 to $250 while larger ones go beyond. Bid bonds can be part of the cost of the construction if and only if the contractor gets picked.

To add to that, contractors pay bid bond companies to help them have a bid bond. The former pays them to be able to come up with a surety that the contractor can fulfill the contract given by the project owner. This payment is called bid bond premium.

How to get a bid bond?

The process of applying for bid bonds differ from company to company, but there are general processes that apply.

The first thing you should do is to get the bid invitation letter or the bid application from the project owner. If they won’t provide any, you can go directly to the big bond company and use their standard application. This application asks for certain things, like:

  • How long has your construction company been doing business?
  • What are your previous projects?
  • How much are you going to bid on this project?
  • When is the bidding date for this project?
  • Have you ever tried bidding before?

These questions may vary, but the point of companies asking these questions is to get to know more about your competency in building and fulfilling projects. They also want to know whether or not you’ve had previous experience bidding and if you were able to get the project. It also matters to companies how much you price your bid because it gives them an idea of how cost-efficient yet profitable your company is.

Another thing you have to do is to provide the necessary documents. Smaller projects require less legal and financial statements, but larger projects require more. Simply because it has a bigger impact for both the project owner and the contractor.

What happens if the contractor fails to fulfill his part of the contract?

The project owner will give the project to the contractor who bid second to the lowest. The costs incurred by the owner would be shouldered by both the surety company and the contractor.

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