To those who are new to the construction or contracting industry, understanding the concept of surety bonds – bid bonds, in particular, is essential.

Bid Bonds, Explained

Contractors are often required to obtain a bid bond as a prequalification measure for their project bid during the bidding process.

Most public construction contracts ask their contractors and subcontractors to secure their proposals with a bid bond, which will serve as legal and financial protection.

If you are awarded the bid, the bond provides the owner with sufficient assurance that the contract will be executed at the agreed price and conditions. It further ensures that you, as the contractor, will fulfill the jobs and responsibilities listed in the policy.

Securing a bid bond also guarantees that you will enter the contract with all the necessary bonds in-place – performance and payment bonds, among others.

How Bid Bonds Work

During the bidding process, contractors estimate the cost of the project. And then, they submit their price to the owner in the form of a bid. The bid winner gets the contract.

The requirement of bid bonds prevents contractors from winning a contract by proposing inappropriately low bids.

Bid bonds also ensure that the terms of the bid are honored after the contract is signed. If the contractor fails to do so – for example, by raising the price after the contract signing, the bond will compensate the owner for the price difference between the first contractor’s bid and that of the bidder to take his place.

Are you preparing to bid on your next project?

Should you find yourself needing to post a bid for your next project, you can’t go wrong by choosing a reliable source like Bennett and Porter.

For more information, get in touch with one of our bonding experts today!