Bid Bonds

A bid bond is issued within the basis of a bidding process to act as a guarantee to a project owner that a winning bid will comply with the terms of a tendered contract. Essentially, the bid bond pre-qualifies the principal/bidder and also provides a guarantee to the project owner that the principal will fulfill the contract once awarded. Bid bonds are required from contractors on all types of projects; including private and public construction projects.

In addition, the bid bond provides the following assurances that the contractor has:

• the full capacity to take on the project;
• to execute the defined parameters and;
• to complete the work to the satisfaction of the project owner

Why is Bid Bond Important?

A bid bond is a guarantee that the bidder provides to the project owner, to effectively demonstrate they have the financial security to successfully complete the job. If a contractor does not complete a project, the property owner can trigger the actual bond to ensure the work is finished.

By requiring a bid bond, the owner can feel confident that the bidder has the financial means to complete the job. This in turn helps the project owner feel more assured as a bid bond helps to confirm that the contractors are financially capable of completing the project.

How Does a Bid Bond Work?

A bid bond involves an agreement between three parties. These parties include:

• The Obligee: the developer/owner of the construction project that is up for bid
• The Principal: the proposed contractor/bidder wanting the work
• The Surety: the financial agency that can issue the bond to the principal

A bid bond is a safety net and minimizes risk. It is a secure way to help project owners get the protection they require and can also support contractors within their own profession.