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Faizan
You used to love them. They were so easy. Now they are in dollar amounts and percentages, sometimes with a limited maximum value. They can be electronic or digital. Sometimes a letter is required instead. Sometimes nothing is required instead! There may be a single or annual charge for it or maybe it is free! It's outta control...
So here is your chance to catch up with everybody's favorite: The fun and fascinating world of Bid Bonds.
The Basics
These instruments accompany a contractor's proposal during the acquisition process for a new project. This is routine on public work, such as federal state and local municipal contracts. The procedure may also be used on private projects at the contract owner's discretion.
The bond guarantees that, if awarded, the bidder will sign the contract, furnish the required Performance and Payment Bond, and commence with the work - or - pay the difference between their bid and the next higher bidder (subject to the maximum dollar value of the bid bond.)
Cost
Usually free although the surety is entitled to charge for them. Typical charges could be an annual bid bond service fee or a per bond charge.
Underwriting
The decision to issue the bid bond is based on the underwriter's willingness to provide the related P&P bond, because that is the real money transaction. The decision is NOT based on the dollar value of the bid bond. Rely on the fact that the underwriter will not provide the bid bond if they do not feel they can support the final bond.
Bid Spreads
If the bidder is more than 10% below the next bidder without a plausible explanation (I have a special machine, I already have materials, I'm already working next door, I'm super fabulous, etc.) the surety could decline the final bond, resulting in a bid bond claim.
Alternative Forms of Security
In addition to a bid bond, proposals may also be secured using a cashier's check or irrevocable letter of credit, depending on what the project owner (Obligee) is willing to accept.
Percentages
The Invitation or Bid Solicitation describes the proposal requirements. It will state if a bid bond is required and the amount.
The bond value is often expressed as a percentage. Example "20% of the attached proposal amount." This is convenient because the underwriter doesn't want to know the actual bid amount (to preserve the bid confidentiality). It is the best way to express the exactly correct amount when typing the bond in advance.
So here is your chance to catch up with everybody's favorite: The fun and fascinating world of Bid Bonds.
The Basics
These instruments accompany a contractor's proposal during the acquisition process for a new project. This is routine on public work, such as federal state and local municipal contracts. The procedure may also be used on private projects at the contract owner's discretion.
The bond guarantees that, if awarded, the bidder will sign the contract, furnish the required Performance and Payment Bond, and commence with the work - or - pay the difference between their bid and the next higher bidder (subject to the maximum dollar value of the bid bond.)
Cost
Usually free although the surety is entitled to charge for them. Typical charges could be an annual bid bond service fee or a per bond charge.
Underwriting
The decision to issue the bid bond is based on the underwriter's willingness to provide the related P&P bond, because that is the real money transaction. The decision is NOT based on the dollar value of the bid bond. Rely on the fact that the underwriter will not provide the bid bond if they do not feel they can support the final bond.
Bid Spreads
If the bidder is more than 10% below the next bidder without a plausible explanation (I have a special machine, I already have materials, I'm already working next door, I'm super fabulous, etc.) the surety could decline the final bond, resulting in a bid bond claim.
Alternative Forms of Security
In addition to a bid bond, proposals may also be secured using a cashier's check or irrevocable letter of credit, depending on what the project owner (Obligee) is willing to accept.
Percentages
The Invitation or Bid Solicitation describes the proposal requirements. It will state if a bid bond is required and the amount.
The bond value is often expressed as a percentage. Example "20% of the attached proposal amount." This is convenient because the underwriter doesn't want to know the actual bid amount (to preserve the bid confidentiality). It is the best way to express the exactly correct amount when typing the bond in advance.
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