Construction Bid Bonds are a type of bond that is issued as part of the construction bidding process. Bid bonds are issued by a surety company to the project owner, to guarantee that the winning bidder (contractor) will complete the contract under the terms at which they bid. Bid bonds are important to the project owners because they ensure that a contractor can comply with the bid contract and complete the project as specified in the contract.
A Construction Bid Bond is purchased when a contractor (principal) is bidding on a construction contract. The bid bond pre-qualifies the principal and provides the necessary security to the owner or general contractor (oblige). A bid bond guarantees that the principal will enter into the contract, if it is awarded.
A cash deposit is required to secure a bid bond and is subject to full or partial forfeiture if the winning contractor fails to either execute the contract. The bid bond ensures that the bidder will execute the contract as specified and provide the required surety bonds upon winning the bid. A bid bond is usually followed up with a performance bond and a payment bond.
A Construction Bid Bond also guarantees that the oblige will be paid the difference between the principal’s bid and the next closest bid. This action is only triggered if the principal is awarded a contract but fails to enter into the contract, as agreed, with the obligee. The bid bond penalty is generally ten percent of the bid. Contractors like bid bonds because they are usually a less expensive option and help preserve cash flow during the bidding process. Owners and general contractors like construction bid bonds because they help confirm that the bidding contractor has the support of a surety company and is qualified to undertake and successfully complete the project.
For more information regarding Construction Bid Bonds, please call us at 866.376.2510 today.