If you are a contractor, applying for a bid bond proves to be a really beneficial thing. You may be aware of these bonds, but don’t know the basic importance of the same. If you aspire to be successful in your business, you should understand the uses of the bid bonds. The prime aim of a bid bond is to safeguard a project owner. These are issued at the time of bidding phase of the projects.
It is issued to assure the project developer that the rewarding contractor will abide by his responsibility at the agreed or decided price. For example, a bid bond will prevent a customer in the event if the contractor tries to pull up the bid after naming into the contract.
A construction bid bond also mentions the other necessary bonds required by a contractor to finish off the project. It mandatory includes the payment bond and the performance bond.
The surety companies may require the contractor to extend a percentage of the bid up front, ahead of the bond issuance. These percentages may vary, depending on the location and situations on the job place.
When an owner decides to call out the bidders on large or small scale projects, they often exclude the un-bonded bidders. The rejection is done to select among the capable ones only. A bonded bidder is always a better and a more reliable option.
Yes, the bonding process is a little extensive and the applicant needs to face some severe background checks. The underwriting company will ask a copy of the applicant credit report and will entail other essential credit documents to verify the ability of an applicant.
Some owners ask a surety letter from the bonding company. Many Federal projects are undertaken, this way. The letter includes how much they believe in the client and the number of contracts they wish to bond. It is a sort of written promise to issue the P & P bond if the contract is granted. Now the filing of a bond can be done electronically using a unique identification number.
The bond value is often displayed as a percentage. To cite an example, 15% of the proposal amount! It is the most convenient way as the underwriter doesn’t want to know the exact bid amount to preserve it confidential. It is the genuine way to express the correct amount when crafting the bond in advance. Sometimes capping is done to prevent the wildly high amount such as 15% of the bid, not to surpass $100,000.
The final call to issue the bid bond depends on the inclination of the underwriter to offer the related P&P bond as it is real money transaction. The underwriter will not engender the bid bond if they don’t feel they can support the final bond.
A bid bond will display that the contractor is viable and compatible to cater the terms of the contract. The developers can choose as per their requirement or familiarity with the contractor’s operation and business ethics.
Like other formal application procedures, the bid bonding process is quite tedious and time-consuming. Every company has its own set and unique method to conduct operations. So the process time varies from one organization to another. But there are ways to speed up the process by having all the essential financial statements and references in hand before.
Be sure to allow a sufficient lead time for the procedure, so that you have a plenty of time to bid on the project of your choice. To know more about the bid bonds and preparing for financial budgeting, read more.
In short, bid bonds are the better and more efficient method to reach the most capable party to accomplish the project within stipulated time and cost. So without any thought or doubt, go ahead and fill in the bid bond!
This article has been compiled by a passionate finance niche writer who loves to pen down his thoughts on Bonds, Insurances while in association with Blogger Outreach experts such as SubmitCore.com.