Three Important Points to Remember About Bid Bonds

If you are interested in construction law then you will need to learn about bid bonds. A bid bond is a way for a contractor to guarantee that the terms of that contractor’s bid are honest and accurate. Essentially, a bid is a promise by the contractor that, if that contractor wins the contract in question, that that contractor will complete the project in accordance with the terms laid out in the bid. Bid bonds give project owners the assurance they need to know that contractors will be able to complete projects in accordance with the conditions laid out in their bids. Here are three important things that you should keep in mind about bid bonds.

Most bid bonds are up to 10 percent of the bid upfront

In most cases, contractors are expected to provide a bid bond sum upfront that is worth between five and ten percent of the bid itself. This upfront sum helps guarantee that the project owner will not be left “on the hook” if the contractor fails to adhere to the conditions set out in the bid. In some cases, however, the upfront sum of the bid bond can exceed ten percent. Many projects that are funded by the federal government, for example, require a bid bond of 20 percent.

A bid bond is not a performance bond

Bid bonds and performance bonds perform similar functions in that they both help provide a financial assurance that a contractor will complete the contract at hand. There is, however, a subtle difference between a bid bond and a performance bond. A bid bond guarantees that a contractor’s bid is accurate, whereas a performance bond provides assurances that the contract will be performed properly and that the contractor will not default on the project.

Bid bond claims are really serious

As mentioned, a bid bond helps guarantee that contractor’s word is good during the bidding process. Without such a guarantee, project owners could suddenly find that the bid winner increases the cost of his or her winning bid, thus forcing the project owner to pay the increased costs or restart the bidding process. Therefore, if a contractor fails to adhere to the terms of the bid then he or she is at very serious risk of having to pay any bid bond claims against him or her. Bid bond claims can be costly since, in many cases, both business and personal assets can be used to help pay such claims. The financial risks posed to contractors by such claims should serve as a reminder that all bids need to be as accurate as possible.

Construction projects cost a lot of time and money, which is why project owners need assurances that any bids they receive are accurate and will be adhered to. Bid bonds give project owners the peace of mind they need to know that a contractor can be held to his or her promises, while they also give contractors themselves the opportunity to show that they are serious about the bids to put forward.


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