Understanding Surety Bid Bonds

Surety Bid Bonds

A Surety Bid Bond is similar to an insurance bond in that the obligee is protected from non-payment. However, a Surety Bond differs from an insurance bond because it is generally less expensive and requires less documentation. A Surety Bond is required for most commercial activities. For example, a contractor may obtain a surety Bond before submitting an estimate to a potential client or for the completion of a proposed project in which the surety is covering payment. A Contractor who’s bidding on a given project might need to obtain a bid bond prior to actually joining the bidding process to ensure payment.

It is best to work with licensed, bonded contractors when bidding on projects. This ensures that you are not paying “under the table” or “off the books.” Many state contracting agencies require bonding, which means certain contractors must obtain Surety bonds to participate in the bidding process, sometimes up to 15%. The fact that contractors often need Surety bonds when working with state agencies often increases the cost of the project.

Often contractors locate bid bonds by conducting a thorough analysis of a given project. When bidding on state projects, it is often difficult for a contractor to determine exactly how much they will be required to pay for a Surety bond, so it is often recommended to include this cost in the initial proposal. Most states have bidding requirements and often require that a contractor submit surety bonds to participate in the bidding process. In addition, it is recommended that any contractor with a state license submit Surety bonds to ensure that the contractor is fully licensed to perform the job. It is not unusual for a contractor to be licensed but fail to submit Surety bonds, which can result in fines and penalties.

A bonding agent plays a vital role in the bonding process. Often there are multiple bidders bidding on a given job. In these situations bonding agents can act as a mediator between all of the bidders by serving as an intermediary. Bonding agents help to keep in line all of the legal forms, requirements and deadlines associated with obtaining Surety bonds for general contractors.

It is important to understand that Surety bond companies differ in terms of the level of protection that they provide. Often bond companies will only offer performance bonds; however there are other companies that will also offer surety bond as well as performance bonds. Therefore it is recommended that the project is thoroughly reviewed in order to determine whether a particular type of bond is needed. If a bonding agent is unsure of the legal requirements for a given project, it is often recommended that the project be submitted to a legal firm to ensure that the contractor is meeting all of the legal requirements.

When conducting an assessment of the bond amount, it is also important to determine whether Surety bond premiums are included in the bid bond cost. Often bonding agents will impose a premium on any Surety bond services that are not already part of the bid. In most cases a bidder will be asked to pay a portion of the Surety bond costs. These fees are generally a percentage of the total bond amount and can vary depending on the particular company that is being selected for Surety Bonding.