What is a Bid Bond?

Last updated on Friday, December 6th, 2013 No Comments

A bid bond is required by an obligee (party the bond is protecting) when seeking a bid proposal or estimate for a specific project.  While bid bonds are generally required for public works construction projects, it can be required for nearly any public project including janitorial services, hauling, street sweeping, Information Technology, food delivery programs, among many more.  The bid bond serves two main purposes:

• Ensures that the principal (contractor) has submitted their bid in “good faith.” Essentially, the principal submitted the bid without collusion and that, if awarded, plans to enter into contract.
• Provides financial assurance to the obligee up to the bid bond percentage if the principal decides NOT to enter into contract for the bid estimate. The liability of the bid bond is determined by the percentage of the bond, usually 5, 10, or 20%.

How much does a bid bond cost?  Generally, bid bonds are free. A contractor would go broke if they had to pay for every single bid bond, as submitting a bid does not guaranty work.  However, the principal will be given a premium rate by their agent, which needs to be factored into their bid should they be awarded.  This is because if awarded, the obligee will required a performance and/or payment bond, which guaranties work in the contract. This where a charge is made and based on a percentage of the contract – usually 1-3%.

How do I obtain a bid bond? In general, for bonds less than $350k, a short application is required and for the most part based on personal credit. Download Here

For bonds above $350k, download our Contractors Questionnaire Here

Posted in Performance Bonds. Tagged with: bid bond, bid bond cost, bid bonds