Bid Bonds: What You Need To Know

Bid Bond For Public Contracts

If you are a contractor looking to bid for a public project, you are legally required to have a bid bond in place. This requirement was put in place to protect project owners from unscrupulous contractors who raise bids after their initial low bid is accepted, or ultimately refuse to take up the project.

What Is A Bid Bond?

In its simplest form, a bid bond is a form of a surety bond. Generally, surety bonds are agreements involving three parties, including the obligee, contractor and surety. In this case, the obligee is the project owner or developer, while the contractor is the principal and the surety is the bonding company that agrees to back the agreement.

According to the law, a bid bond should be in place when a contractor bids for a project. The main aim of having this agreement in place is to assure the project owner or developer that the contractor will take on the job after being awarded the contract. The agreement also guarantees that the contractor will fulfill their obligations at the bid price, without raising it. Finally, a bid bond is used to assure the project owner that the contractor will take up a performance contract to complete the project.

It’s worth noting that although bid bonds are mainly required for public projects, they may be required for private projects as well.

How Does A Bid Bond Work?

Now that you know what a bid bond is, let’s look at how it actually works. A bid bond protects the project owner in case the contractor violates the contractual agreement between them. A violation can be in the form of the contractor refusing to take up the job after being awarded the project, or raising the bid amount.

In case of such a violation, the principal and the surety are liable to pay damages in case the project owner makes a successful bid bond claim. The penal amount for such claims is usually between 10 and 20% of the bid amount. Generally, the principal usually reimburses the surety for any amount they contribute towards covering the claim.

Getting A Bid Bond

If you are looking for a bid bond, you need to approach a bid bond agency that will help you get in touch with bid bond companies like this ones mentioned on These companies rarely deal directly with the public. The company will then comprehensively assess your financials to establish your entity’s credit worthiness.

It is also worth noting that you will be required to pay a 5 to 10% premium, based on the bond amount, as the cost of the service.

Effects Of Bid Bond Claims

It is important for contractors to avoid being involved in successful bid bond claims. This is because such claims can leave them with a bad reputation, unable to access bid bonds in future. The bid estimation process should be handled carefully. In case any mistakes are made, it is vital that this is explained to the project owner comprehensively to avoid any bid bond claims.

The above is an in depth description of bid bonds, and everything else you need to know about these construction project requirements.

Posted in: Law