What Is A Bid Bond And Why Do Contractors Need Them?

Prepare your Construction Company for a Project with a Bid Bond

If you’re in the construction industry, you know that clients will not hire without researching the market and finding the best construction company for the job. More often than not, they open a public tender on which construction companies can then apply for the contract.

In the documentation provided, you will note that you need to deliver on numerous documents proving why you are the best choice and eligible for the job. One of the documents you will be asked to provide is a Bid Bond.

What is a Bid Bond?

The Bid Bond protects the project owner by giving them  the right to activate it in case the contractor backs down from further engagement or changes the price after the bid is completed. The bond is usually 5% to 10% of the sum for completing the project.

Not all project owners require contractors to have a Bid Bond. However, in cases where the owner requires you to provide one, you must have it. Otherwise, you will be disqualified from competing for the job.

TIP:  Acquire the bid bond from your current General Liability, Business Property, and Workers Compensation provider. Consult an expert, such as and, as they specialize in many Business Insurance policies like this.

What can Activate the Bond?

There are cases when contractors try to change the rules after they’ve won the bidding. The owner then terminates the contract, activates the bond, and gives the project to the next bidder.

Another scenario in which the owner can activate the bond is when contractors fail to complete or start the job on time. Every project has deadlines. Not following the rules written by the project owner is guaranteed to activate the Bid Bond.

Who provides the Bid Bond?

A bank or an insurance company provides it. They are authorized to create one and can guarantee you have the funds available. Should the owner activate the bond, the bank or the insurance company will have to pay over the money on your behalf. Here’s where you can get an advice and purchase your bid bond should you require one.

How long does a Bid Bond last?

Every Bid Bond is specifically compiled for one project. Depending on the size, scope, and other related factors, the bond will be made and charged differently. Companies charge different amounts for their services.

A Bid Bond is only good for bidding on one project. There are various reasons for this, the most notable being that every project has a different price. Depending on the bid price, the bond will be tailored to the specific project.

Do I need this Money physically?

Cash is the preferred method in most cases. Unless stated otherwise, you can’t attach assets or property to stand as a Bid Bond guarantee during the bidding process. You must have the required money on hand.

A Bid Bond is a Guarantee for Contractor Professionalism

When project owners open a tender for a project, they expect only serious companies to compete for the job. They often ask for a Bid Bond because this acts as a guarantee for them by removing the less professional or unprepared contractors from the list.

No professional contractor will bid for a project that they are not ready to undertake. If you are eligible for a Bid Bond, then you are a great choice for the job.

Back to top button