If you’re a contractor or involved in bidding on construction projects, this post will equip you with valuable insights. We’ll dive into what a bid bond is, how it works, the costs involved, and the application process.

What is a bid bond?

A bid bond is a type of construction bond that guarantees a contractor will submit a bid for a construction project that is financially feasible for them. The bond protects project owners – who typically require these bonds to ensure contractors are serious about bidding on their projects and that they have the financial resources to complete a project if awarded a contract.

How does a bid bond work?

Before a contractor can submit a bid for a construction project, they will typically be required to post a bid bond (a form of bid security for the project owner). The penal sum is typically 5%, 10%, or 20% of the total bid amount. These bonds are free. However, contractors must qualify for the full bid amount to obtain one. Learn more about bond costs in our Ultimate Guide.

There are three parties involved:

  • Project owner (obligee): The party that hires the contractor to complete the project and requires the bond as part of the bidding process
  • Contractor (principal): The party responsible for submitting a bid for the construction project and, if awarded the contract, executing the project
  • Surety company: The company that issues the bond and guarantees that the contractor will submit a realistic bid

How Bid Bond Claims Work

If the contractor withdraws their bid after submitting it or is awarded the contract and fails to provide the required performance bond, the project owner can file a claim. 

  • If you fail to accept the job after winning a bid, the project owner will be forced to take the next lowest bid, which will cost them money. Ultimately, you will be responsible for the difference they’re forced to pay because you pulled out of the agreement. 

To avoid costly claims, make sure you only submit serious bids, take the job if you win it, and purchase a performance bond to replace your bid bond.

How does a contractor qualify for a bid bond?

To qualify, contractors must typically meet the following requirements:

  • Good credit history
  • Proven track record of completing projects
  • Financial resources to complete the project
  • License and insurance coverage

Note: If you have a low credit score and need this bond, call us at (888) 435-4191. We have programs to help applicants with poor credit get the bonds they need.

What happens if a contractor fails to meet their obligations?

If a contractor fails to meet their obligations under the contract, the surety company may be required to pay the project owner for any damages incurred. This could include the cost of completing the project, the cost of repairing any damage that the contractor caused, and the cost of lost profits. Once the surety settles the claim, they will follow up with the contractor and require full repayment of any costs paid out.

Claims are costly and can harm a contractor’s reputation and ability to get bonded again in the future. It’s important to avoid them at all costs.

Other Frequently Asked Questions

What is a contract bid?

A contract bid is a proposal submitted by a contractor to the project owner, outlining the cost, timeline, scope, and other terms and conditions for completing a specific project. The bid is typically submitted in response to a request for proposals (RFP) issued by the project owner.

The bid bond is often included to guarantee the contractor’s commitment to the project.

Is a bid bond free?

Unlike many other construction bond providers, ZipBonds offers bid bonds free of charge for qualifying contractors. Bid bond costs are only relevant if you win a bid and need to purchase a performance bond, which typically costs 1-3% of the contract’s value.

How to Apply for a Bid Bond

To qualify for this bond, you must pass the bond underwriting process with a bonding company. This involves filling out a form, signing the physical bond, and delivering it to the required party. Here’s an overview of what you’ll need to provide to complete your application.

Bid Bond Requirements for Application

  • A contractor questionnaire (basic information about the contractor)
  • Bid specs
  • Year-end business financial statements 
  • Interim business financial statement
  • Accounts receivable or accounts payable schedule
  • Work-in-progress schedule 
  • Personal financial statement
  • Bank reference
  • Job references 

Learn more in our guide, “Contract Bond Underwriting 101.”

Get the Construction Bonds You Need Today

You can start the application process online, and one of our agents will contact you to complete the process in a zip! We also offer a 3-minute pre-qualification process. 

If you have questions about construction bonds or the application process, call 888-435-4191 or email support@zipbonds.com. You can also reach out via Live Chat on our website.

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