A Bid bond can take time to secure, so don’t delay if you need a bid bond for an upcoming bid. We have a contractor client who occasionaly bids on municipal projects. Historically, their projects were small, so instead of purchasing a bid bond, they “self-bonded” by posting 5% of the contract bid. Once they secured the bid, they would purchase their performance bond and payment bond through us.
This contractor recently had the opportunity to land a large municipal project with a bid of over $900,000, so they would have had to post over $45,000 in lieu of their bid bond. That’s a lot of cash to tie up so, they needed a bid bond. Unfortunately, they needed to have their bid bond in place to submit their bid and waited until the last minute to secure their bid bond. They did not have their books in order and did not leave enough time for the surety company to review their application and missed the bid deadline.
It is very common for companies and municipalities to require contractors and sub-contractors to post, bid bonds, performance bonds, and payment bonds to manage the risk associated with contractors defaulting on bids and projects.
Before you begin your search for a bid bond, performance bond, or payment bond, it is a really good idea to get your books in perfect order. Any reputable bonding agent will need to see a current financial statement and balance sheet in order to determine if you’re a viable client. They will also most likely want you to provide a “WIP” (Work In Progress) report.
Because surety bonds are a form of credit, surety companies typically evaluate credit worthiness for first time bond applicants, especially for projects over $250,000. The surety typically requires a full financial evaluation, including personal and business financial statements, credit worthiness, applications, references, etc. This can take some time to put together, so be sure to allow some time so you don’t miss the project deadline.
Once you have an established relationship with a surety company, the bonding process moves more quickly and bonds can be issued pretty quickly. Sureties usually require periodic financial updates so they can stay apprised of your financial strength and evaluate your capacity to take work on an ongoing basis.
Some surety companies make bonds available directly to a select few very large companies, but most bonds are provided through insurance agents and brokers. When selecting a bonding agent it’s a good idea to work with an independent contractor bond specialist, that specializes in contractors, rather than a “captive” agency. Captives are often “trapped” and have only one or two bond markets available to them. Independent bonding agencies can work with several surety companies to assemble the best bond package at the best price.
Don’t wait to get your bid bond application started. Call us toll free at 866.376.2510 or start your bid bond quote online, we can help you get bonded and win your next bid.