What is a Bid Bond?

Posted by on Dec 13, 2012 in Blog, Construction News | Comments Off on What is a Bid Bond?

Signing Contract

A bid bond is issued to the property manager of a construction project and indicates that the task will be accomplished by following the details in the contract. This is an important piece to the puzzle because project managers have little information as to whether or not the contractor is financially stable and has the necessary resources and experience to take on the project. A bid bond is like saying, “I can handle the project per the instructions in the contract.” This level of security is significant, because if the contractor cannot follow the contract, the project manager can collect compensation off the bond.

Bid bonds hold a lot of significance in the construction industry, even before a bid is accepted. For example, with the implementation of bid bonds, contractors are prevented from placing thoughtless bids because if the bid were to be accepted, the contractor would be obligated to perform the job. Furthermore, bonds are not issued until there is a comprehensive credit check done on the company.

Bid bonds are not a choice. All bidders are required to submit a bond on federal construction projects, and even private construction projects are following suit in order to protect themselves. This extra step goes a long in ensuring that the project manager will have their project completed according to the obligations in the contract, and if not, there will be compensation to collect. For bidders, bid bonds are essential to keeping yourself competitive in the industry.

So what happens if the construction bond obligations are not adhered to? How will the bid bond help? Basically, the contractor and surety – the person who guarantees the money – will be liable for the bond. There are various penalties that are charged for failure to comply with the bid bond, and the contractor and surety are responsible for additional costs that the project manager encounters when choosing another contractor for the project.

No one wants to be on the losing end of an unfulfilled contract, which is why bid bonds are in place for protecting project managers and preventing careless bids from being placed.

Blog sponsored by: Construction Reports 


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