What is the Purpose
of a Bid Bond?
As a contractor, there will be a time where you will need to
apply for a bid bond. A bid bond is a debt
secured by a bidder for a construction job to guarantee the project owner that
the bidder will take on the job if selected. This provides financial assurance
that the bid has been submitted in good faith and that the bidder has the
financial means to accept the job for the price quoted in the bid. Bid bonds
help the selection process of a job contract run smoothly. Without them,
project owners would have little in the way of assurance that the bidder they
select for a job would be able to properly complete the job without running
into cash flow problems.
Because of bid bonds for general contractors, project owners are more
comfortable to award a project knowing that if the project fails, they can
collect compensation from the bid bond. This type of insurance is specifically
designed to ensure that once you’ve accepted a bid in good faith, you won’t be
left hanging if the contractor suddenly shifts from the agreed upon contract.
The Ins and Outs of
Bid Bonds
The Surety
Association of Canada strongly advises construction purchasers to require
bonds from all contractors providing construction services and to insist that
these bonds be issued by insurance/surety firms which are duly licensed in the
province where the work is taking place. Securing a bid bond is a detailed
process and you will want to work with a bond broker that has extensive
experience in bid bonds and will be there to assist in the event an insurance
claim needs to be filed.
Bid bonds are different from any other type of contractor’s
insurance. These bonds are nearly always required, before attempting to place a
bid on an open project and provide the project owner with added reassurance.
The bond tells the owner that the contractor will agree to the bid amount and
will also obtain the performance and payment bonds, if they’re required.
Although it does very little in terms of helping the contractor, they would not
be able to place their bid, without this bond. The first step in obtaining a
bid bond is to contact a broker, they will assess your application based on
criteria that may include proof of the following:
- Continuation plans;
- References;
- Current work in progress;
- Good character;
- Experience in matching contract obligations;
- Good credit history;
- Use of necessary equipment to carry out the
contract.
After submitting your application, the broker will do a
thorough evaluation of your credit score and financials to determine a bond
premium you need to pay to get the bid bond.
Bond Brokers You Can
Trust
With over 30 years of experience, Regional Insurance
Services will guide you through the application
process and provide you with detailed information on bid bonds. The family
owned and operated insurance brokerage has the expertise to service bid bonds
for general contractors.