Bid Bonds guarantee that the bidder (applicant) on an agreement will enter into the contract and endow the required payment and performance if assigned the contract. Bid bond companies uses these agreements as financial security for contract bid proposals, especially for large projects, for example, commercial developments.
The main objective of a bid bond is to ensure that the low-bidding contractor will stand behind the amount cited in his bid. This keeps the contractor from increasing the bid on the project after entering into an agreement with the developer.
Bid bonds are commonly used as a risk management tools required at the starting stage of a construction project.
Bid surety bonds generally require a contractor to provide between 5% & 10% of the bid forthright as a penal sum. Contractors prefer these bid surety bond because they are a less costly alternative and they don’t tie up cash or bank credit lines during a bidding option. However, federally-funded projects typically require the penal sum to be 20% of the bid. Also, the surety bond company will seek damages from the contractor for any losses. Contractors pay surety agencies a premium to secure a bid bond.
Bid bond cost vary incredibly because of various factors, such as:
the bid amount,
the jurisdiction in which the contract is executed.
Typically bid bond premiums are between 1% and 5% of the penal sum.
If you are a contractor & new to surety bonds and need some direction on surety bid bonds, Surety Bond Professionals offers a fast and simple process for acquiring bid bonds, with the least amount of hassle.