If you require bid bonds, it’s more difficult to underbid contracts. Overall, contractors must submit one with the proposal, or it’s rejected. If the contractor underbids the project they receive, they might not be allowed a performance bond to continue with the project or could walk away before they experience financial losses. Then, developers must submit bid bond claims against them.

Overall, contract bonds protect the owner of the project. After a valid claim, the bid bonds are indemnified. This means the contractor must repay the surety plus any other expenses listed in the bond agreement. 

Usually, bid bonds (contract bonds) are financial agreements between three parties. The obligee is often the government agency or project owner. They require the principal (contractor) to get the bond from a surety company.

In a sense, the bid bond guarantees the owner that if the contractor gets the job, they will fulfill the terms listed in the contract presented during the bidding process. Likewise, they may need other bonds, such as a payment bond or a performance bond.

Insurance often benefits the company carrying the policy. However, bid bonds are required for the project owner and entity requiring them.

Indirectly, the bid bond can benefit a contractor, as well. They have a clearer idea of the type and size of the project they’re getting into. If they often work on bonded projects, they won’t be in over their heads in terms of experience or financial stability.

The bid surety bond is often inexpensive, though the amount varies between projects. Usually, it’s about five to 10 percent of the full contract price. For example, a $100,000 contract requiring a 10 percent bid bond would mean $10,000 from the contractor.

Bid bonds are generally smaller than the full contract because if a claim happens, the obligee incurs the damages between the lowest bidder and the second-lowest bidder. Typically, five to 10 percent is enough to cover that spread.

A surety bond is any three-party financial arrangement between an obligee, principal, and a surety. Therefore, a bid bond is one type.

You might wonder about the bid bond vs. performance bond. Bid bonds hold a contractor accountable for the bid proposal. However, performance bonds ensure that the contractor who gets the project will complete it based on the terms of their contract.

Overall, if a bid bond is required, it’s often followed by a performance bond. However, bid bonds won’t automatically convert into performance bonds.

Ultimately, you should also understand the difference between performance and payment bonds. A payment bond ensures that the contractor pays the subcontractors and material suppliers according to those contracts. However, performance bonds offer a financial guarantee to the project owner that the work will get done according to the contract terms.

You might be wondering: “Are there any bid bond companies near me?” The good news is you don’t have to go to someone in your localized area. There are many bid bond companies out there, and we are one of the top choices.

When you need surety companies, choose S. Philips Surety & Insurance Services, Inc. We offer many types of bonds and insurance.

Learning how to get a bid bond is crucial. If the amount is less than $100,000, it’s often a simple process. Your surety company can handle that with ease. 

However, larger bonds will focus on the contractor’s credit history, industry experience, and more. It’s best to put in a bid bond request to get a quote.